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A0934
Title: Revisiting the public debt-growth relationship using threshold quantile regression Authors:  Luis Filipe Martins - ISCTE-IUL (Portugal) [presenting]
Abstract: The soaring public debt-to-GDP ratios in several countries of OECD, especially after the recent financial crisis, is one of the main concerns for policy makers as it jeopardizes economic growth and social welfare. As a result, authorities adopt corresponding countermeasures to bring debt to sustainable levels (eg, the Greek rescue deal). A substantial body of this literature has been proposed to modeling and testing for a threshold effect in the link between debt and real GDP growth but apparently it has not reached a broad consensus. The well-known 90$\%$ debt level above which economic growth slows down and default risks rise surely depends on the economy under study and the database used but also on the chosen methodology. We estimate and test for the existence of threshold effects in the relationship between debt and growth by means of threshold quantile regression. Thus, we look at the whole conditional distribution of growth instead of the mean quadratic regression. Looking at country-specific cases, we use the updated Reinhart-Rogoff dataset and extend it by adding a few number of covariates. We present methods for estimation and testing that we believe to be new in the time-series context.