Friday, May 11, 2012

Debt and Economic Growth: NBER Working Paper

Came across this fascinating working NBER paper from heavy hitters Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff entitled "Debt Overhangs: Past and Present."

The authors examine if high levels of debt impact economic growth. The answer is yes, making it hard to grow out of debt. You either take 20 years of stagnation to come out of the debt hole or there is a  cataclysmic event (probably related to the failure of the previous status quo) such as war or collapse that resets the system.

The authors use data from several advanced economics, tracking the amount of debt relative to GDP and how long subpar economic growth persisted.

By the way, we have the NBER database of working papers available here. Can't get it for free on the internet.

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