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Private and public debt convergence: a fractional cointegration approach

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Abstract

The devastating effects of the financial and economic recessions within the last two decades have led researchers to question whether there is a connection between the public and private financial sectors that contributes to the rapid propagation of crisis. We analyze the fractional cointegrating structure between the private and public debt-to-GDP ratios for 17 European countries to examine the relevance of this relationship as an amplification channel of shocks. On the one hand, the univariate fractional integration approach reveals that shocks have permanent effects on financial variables in all the countries considered. On the other hand, we find that the number of countries for which private and public debt are cointegrated increase after the Great Recession.

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Notes

  1. Empirical applications of fractional integration in economic time series include among others the papers by Sowell (1992), Baillie (1996), Gil-Alana and Robinson (1997), Gil-Alana and Moreno (2012), Tarasov and Tarasova (2016), Johansyah et al. (2021).

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Acknowledgements

Luis A. Gil-Alana gratefully acknowledges financial support from the MINEIC-AEI-FEDER PID2020-113691RB-I00 project from ‘Ministerio de Economía, Industria y Competitividad’ (MINEIC), ‘Agencia Estatal de Investigación’ (AEI) Spain and ‘Fondo Europeo de Desarrollo Regional’ (FEDER). An internal Project from the Universidad Francisco de Vitoria is also acknowledged. Comments from the Editor and two anonymous reviewers are gratefully acknowledged.

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Authors and Affiliations

  1. Faculty of Social Sciences, Universidad Villanueva, Calle de la Costa Brava 2 y 6, 28034, Madrid, Spain

    Maria Malmierca-Ordoqui & Lorenzo Bermejo

  2. University of Navarra, Pamplona, Spain

    Luis A. Gil-Alana

Authors
  1. Maria Malmierca-Ordoqui
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  2. Luis A. Gil-Alana
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  3. Lorenzo Bermejo
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Correspondence to Maria Malmierca-Ordoqui.

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Appendices

Appendix 1

See Table 6.

Table 6 Summary table of existing relevant literature related to the current analysis
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Appendix 2: Main statistics and graphical trends of the data

See Tables 7 and 8, Figs. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18 and 19.

Table 7 Summary statistics of the private debt-to-GDP ratio series
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Table 8 Summary statistics of the public debt-to-GDP ratio series
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Fig. 1
figure 1

Average of private and public debt-to-GDP ratios (period 1970Q1–2020Q3)

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Fig. 2
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Average of private and public debt-to-GDP ratios (sub-period 2008Q1–2020Q3)

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Fig. 3
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Austria

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Fig. 4
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Belgium

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Fig. 5
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Czech Republic

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Fig. 6
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Denmark

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Fig. 7
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Finland

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Fig. 8
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Evolution of private and public debt-to-GDP ratio since the Great Recession in France

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Fig. 9
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Germany

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Fig. 10
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Greece

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Fig. 11
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Hungary

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Fig. 12
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Ireland

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Evolution of private and public debt-to-GDP ratio since the Great Recession in Italy

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Fig. 14
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Luxembourg

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Fig. 15
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Netherlands

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Fig. 16
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Poland

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Fig. 17
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Portugal

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Fig. 18
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Spain

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Fig. 19
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Evolution of private and public debt-to-GDP ratio since the Great Recession in Sweden

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Malmierca-Ordoqui, M., Gil-Alana, L.A. & Bermejo, L. Private and public debt convergence: a fractional cointegration approach. Empirica 51, 161–183 (2024). https://doi.org/10.1007/s10663-023-09594-9

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