Dynamic effects of total debt and GDP: A time-series analysis of the United States

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.author Lainà, Patrizio
dc.date.accessioned 2012-02-10T11:29:24Z
dc.date.available 2012-02-10T11:29:24Z
dc.date.issued 2011
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/2280
dc.description.abstract The purpose of the present thesis is to examine the dynamic interactions between total debt and GDP. In particular, the growth rates are studied in real terms. Total debt is defined as the sum of credit market liabilities of household, business, financial, foreign, federal government, state government and local government sectors. The methodology of this study is based on time-series regression analysis, in which a structural VAR model is estimated. Then, the dynamic interactions are studied with Granger causality tests, impulse response functions and forecast error variance decompositions. The data is based on the United States from 1959 to 2010 and it is organized quarterly. The main finding of this study is that real total debt growth affects real GDP growth, but there is no feedback from real GDP growth to real total debt growth. The response of real GDP growth to a shock in real total debt growth seems to be transitory, but the level effect might be persistent. In both cases the effect is in the same direction. Thus, a positive shock in the growth rate of real total debt has a transitory positive effect on real GDP growth rate, but may have a persistent positive effect on the level of real GDP. The results of this study imply that economic growth typically requires accumulating total debt. In other words, economic growth is very difficult to achieve when total debt is reduced. At the time being, the private sector of the United States is already heavily indebted and, hence, it seems likely that it is unwilling or unable to accumulate more debt. Consequently, during a recession the public sector should borrow to stimulate the economy and enhance the repayment ability of the private sector. Furthermore, the United States can be considered as a financially sovereign country, which does not face an income constraint, it can also clear all its debt obligations at any given time and, thus, it cannot drift into insolvency. However, present financial institutions set constraints for public borrowing especially in Europe. Consequently, there might be a need to redesign European institutions in order to facilitate public borrowing. en
dc.format.extent 98
dc.format.mimetype application/pdf en
dc.language.iso en en
dc.title Dynamic effects of total debt and GDP: A time-series analysis of the United States en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Economics en
dc.contributor.department Department of Economics en
dc.contributor.department Taloustieteen laitos fi
dc.subject.keyword total debt
dc.subject.keyword GDP
dc.subject.keyword real
dc.subject.keyword growth
dc.subject.keyword money
dc.subject.keyword United States
dc.subject.keyword structural VAR
dc.identifier.urn URN:NBN:fi:aalto-201305163166
dc.type.dcmitype text en
dc.programme.major Economics en
dc.programme.major Kansantaloustiede fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon kansantaloustiede
dc.subject.helecon economics
dc.subject.helecon kansantalous
dc.subject.helecon national economy
dc.subject.helecon velat
dc.subject.helecon debt
dc.subject.helecon kansantuote
dc.subject.helecon national product
dc.subject.helecon taloudellinen kasvu
dc.subject.helecon economic growth
dc.subject.helecon Yhdysvallat
dc.subject.helecon United States
dc.ethesisid 12717
dc.date.dateaccepted 2012-01-04
dc.location P1 I

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