Authors: Tigran Poghosyan
Publish Date: 2017/01/03
Volume: 54, Issue: 2, Pages: 425-460
Abstract
We employ the duration framework to study determinants of public debt cycles in 57 advanced and emerging economies over the 1960–2014 period with a particular focus on the impact of financial cycles The results suggest that the association between financial and debt cycles is asymmetric Debt expansions preceded by overheating in credit and financial markets tend to last longer than other expansions but there is no significant association between financial cycles and debt contractions There is strong evidence of duration dependence in both phases of the cycle with the likelihood of expansions and contractions to end increasing with the length of their respective spells Higher initial level of debt increases the spell of contractions persistence of adjustment effort hypothesis and reduces the spell of expansions debt sustainability hypothesis The results are robust to the inclusion of global factors openness political stability and debt crisis indicators as additional controlsI would like to thank Bernardin Akitoby Tamim Bayoumi Julio Escolano Karina Garcia Vitor Gaspar Deniz Igan Luis Jacome Carlos MulasGranados Martin Saldias Damiano Sandri Abdelhak Senhadji Cesar Serra Marzie Taheri Sanjani and seminar participants at IMF’s Fiscal Affairs Department for useful comments and suggestions Macarena Torres Girao provided excellent editorial assistance The views expressed in this paper are those of the author and do not necessarily represent those of the IMF or IMF policy
Keywords: