## Chapter: 2. Debt Surges and Components of GDP (unconditional)

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### I. Scope and main questions
- Examines how real and potential economic growth perform after debt surges across household (HH), nonfinancial corporate (NFC), and public (GOV) debt.
- Sample: unbalanced panel of up to 190 countries spanning 1970–2020 (dataset: IMF’s Global Debt Database).
- Key question: Do debt surges reduce future real and potential GDP, and through which demand components?

### II. Data, surge definition, and measurement
- Debt categories (all expressed in percent of GDP): household debt (loans and debt securities), nonfinancial corporate debt (loans and debt securities), public debt (general government when available; otherwise central government).
- Debt surge indicator: equals 1 in year t if the year-to-year change is larger than the country’s average annual change plus one standard deviation AND the change is at least 1 percent of GDP; otherwise equals 0.
- Potential GDP estimation: two approaches used, including Hamilton (2018) filter with h = 2 and k = 3.
- Primary data source: IMF’s Global Debt Database (Mbaye and others, 2018). Other macro variables from IMF WEO Database.

### III. Descriptive statistics (1970–2020)
- Number of surges:
  - HH: 202
  - NFC: 219
  - GOV: 609
- Median surge sizes (percent of GDP):
  - HH (Total sample): 4.1
    - AEs: 4.8
    - EMEs: 2.8
    - LICs: 3.1
  - NFC (Total sample): 7.5
    - AEs: 9.0
    - EMEs: 5.7
    - LICs: 2.9
  - GOV (Total sample): 12.4
    - AEs: 8.6
    - EMEs: 12.3
    - LICs: 16.4
- Note: many surges overlap across debt types and income groups.

### IV. Methodology (brief)
- Local projection method (Jordà, 2005) estimates cumulative responses up to k = 5 years after surge.
- Baseline regression: y_{t+k} − y_{t−1} = α_i + β^k DS_{i,t} + θ X_{i,t} + ε_{i,t}, estimated by OLS with country fixed effects and robust standard errors clustered at country level.
- Nonlinearities explored via smooth transition (STAR) style weighting function F(z_{i,t}) using initial economic/fiscal conditions (normalized z).

### V. Baseline (unconditional) empirical findings
- Total (household + NFC + government) debt surge:
  - Real GDP: on average 2 percent of GDP lower after 5 years relative to no debt surge.
  - Potential GDP: about 1.5 percent lower after 5 years.
- Public (government) debt surges:
  - Real GDP: tends to be lower by 3–4 percent in the medium term after a public debt surge.
  - Potential GDP: lower by about 1.5 percent after 5 years.
- Private debt surges:
  - Household: no strong initial effect on real GDP; some medium-term decline but not statistically robust at 90 percent CI.
  - NFC: only weak evidence of lower GDP over time; higher uncertainty around estimates.
- Largest-surges analysis (large defined as > mean + 2 std and at least 1.5 percentage points of GDP) produces broadly similar results.

### VI. Results conditional on macro-fiscal state
- Conditional on initial output gap (recession vs expansion):
  - Public debt surges in recessions: growth after a surge tends to be higher than the unconditional case (consistent with counter-cyclical fiscal responses), but not necessarily above the no-surge case.
  - Public debt surges in expansions (large positive output gap): growth tends to be lower after a surge.
  - Private debt surges: can temporarily boost output if initiated during expansions, but effects often reverse over time.
- Conditional on initial total debt (low vs high leverage):
  - If total debt levels are high: debt surges associated with worse outcomes — GDP on average 4 percent lower after 5 years relative to no surge.
  - Unconditional comparison: GDP about 2 percent lower after 5 years.
  - If total leverage is low: debt surges may be associated with higher real growth for a few years (effects tend to die down).
  - Public debt surges: negative effect regardless of initial total leverage; some evidence of stronger medium-term negative impact when initial debt is low (as debt rises).
  - Private debt surges: beneficial effects when initial leverage is low, detrimental when initial leverage is high; the leverage channel is particularly significant for household debt.
- Conditional on contemporaneous interest rates:
  - Short-term impact similar regardless of current borrowing costs.
  - Some evidence that GDP may be persistently lower after debt surges when contemporaneous interest rates are low.

### VII. Channels — components of aggregate demand (unconditional)
(Summary from Table 2. Percent changes refer to deviations from baseline (no surge).)
- Household surge:
  - Private consumption: Positive effect ST
  - Private investment: Lower MT (5%)
  - Public investment: No significant impact
  - Exports: Lower ST
  - Imports: Lower MT
- Corporate surge:
  - Public consumption: Lower MT (3%)
  - Private investment: Lower (6%)
  - Public investment: Lower (10%)
  - Exports: Higher MT (4%)
  - Imports: Higher ST
- Government surge:
  - Private consumption: Lower (5%)
  - Public consumption: Lower (2%) in first years
  - Private investment: Lower (8%)
  - Public investment: Lower (15%)
  - Exports: Lower ST; higher MT
  - Imports: Lower (4%)
- Additional channel findings:
  - Public and private investment are especially weak after debt surges; public investment is 15 percent lower than baseline following public debt surges.
  - Corporate debt surges are followed by lower private investment and markedly lower public investment (−10%).
  - Household debt surges have smaller overall impacts: temporary increase in private consumption, medium-term lower private investment; some decline in public consumption; exports temporarily lower, imports lower in medium term.

### VIII. Robustness checks
- Controls included: up to two lags of dependent variable and surge shocks; country-specific time trends; simultaneous inclusion of all three surge types.
- Additional checks: control for WEO one-year-ahead growth expectations and budget balance-to-GDP; Driscoll-Kraay robust standard errors for cross-sectional dependence.
- Sensitivity exercises (available upon request) included: excluding post-GFC period; controlling for sovereign rating scores; restricting to central government surges associated with downgrades; excluding currency devaluation years.
- Main qualitative conclusions are robust across these exercises.

### IX. Key policy-relevant takeaways
- Output is persistently lower after total debt surges, but the magnitude and persistence depend on the debt type and initial macro-fiscal conditions.
- Public debt surges are most consistently associated with large and persistent negative outcomes for real and potential GDP.
- Private debt surges can be less damaging or even temporarily supportive of growth if initial total leverage is low; they are more harmful when leverage is already high.
- Investment (both private and public) is the primary margin through which debt surges reduce future growth; public investment falls substantially after public debt surges.
- Low initial debt provides more fiscal space to borrow in crises without jeopardizing future growth; prudent policies and buffers matter.
- Monitoring and prevention of excessive private-sector leveraging is important, as excess private leverage appears especially detrimental to future growth.

*International Monetary Fund — Chapter: "2. Debt Surges and Components of GDP (unconditional)".*

### References .............................................................................................................

### References

### Annexes
- Annex I. Robustness Exercises ....................................................................................................................... 30

### List of Figures
- 1. Total Debt Across the World, 2020 (% GDP) .................................................................................................... 6
- 2. Changes in Debt around Surges (average, all countries, percent of GDP) .................................................... 18
- 3.a Real GDP and Potential Output following Total Debt Surges (percent) ........................................................ 19
- 3.b Real GDP and Potential Output following Extreme Total Debt Surges (percent) ......................................... 19
- 4. Real GDP and Potential Output following Debt Surges (percent) ................................................................... 20
- 5. Real GDP and Potential Output following Debt Surges by income group (percent) ....................................... 21
- 6. Real GDP following Debt Surges: the role of the business cycle (percent) .................................................... 22
- 7a. Real GDP following Debt Surges: the role of total indebtedness levels (percent) ........................................ 23
- 7b. Real GDP following Debt Surges per type of debt (percent) ......................................................................... 24
- 8. Real GDP following Debt Surges: the role of interest rate conditions (percent) ............................................. 25
- 9. Channels: Effect of Debt Surges on Aggregate Demand Components (percent) ........................................... 26
- 10. Channels: Effect of Debt Surges on Aggregate Demand Components, conditional on initial debt  level ..... 27

### List of Tables
- 1. Debt Surges by income groups (1970-2020) .................................................................................................... 7

*Source: wpiea2022159-print-pdf - References .............................................................................................................*

### 2. Debt Surges and Components of GDP (unconditional) ...................................................................

### 2. Debt Surges and Components of GDP (unconditional)

### I. Scope and main questions
- Examines how real and potential economic growth perform after debt surges across household (HH), nonfinancial corporate (NFC), and public (GOV) debt.
- Sample: unbalanced panel of up to 190 countries spanning 1970–2020 (dataset: IMF’s Global Debt Database).
- Key question: Do debt surges reduce future real and potential GDP, and through which demand components?

### II. Data, surge definition, and measurement
- Debt categories (all expressed in percent of GDP): household debt (loans and debt securities), nonfinancial corporate debt (loans and debt securities), public debt (general government when available; otherwise central government).
- Debt surge indicator: equals 1 in year t if the year-to-year change is larger than the country’s average annual change plus one standard deviation AND the change is at least 1 percent of GDP; otherwise equals 0.
- Potential GDP estimation: two approaches used, including Hamilton (2018) filter with h = 2 and k = 3.
- Primary data source: IMF’s Global Debt Database (Mbaye and others, 2018). Other macro variables from IMF WEO Database.

### III. Descriptive statistics (1970–2020)
- Number of surges:
  - HH: 202
  - NFC: 219
  - GOV: 609
- Median surge sizes (percent of GDP):
  - HH (Total sample): 4.1
    - AEs: 4.8
    - EMEs: 2.8
    - LICs: 3.1
  - NFC (Total sample): 7.5
    - AEs: 9.0
    - EMEs: 5.7
    - LICs: 2.9
  - GOV (Total sample): 12.4
    - AEs: 8.6
    - EMEs: 12.3
    - LICs: 16.4
- Note: many surges overlap across debt types and income groups.

### IV. Methodology (brief)
- Local projection method (Jordà, 2005) estimates cumulative responses up to k = 5 years after surge.
- Baseline regression: y_{t+k} − y_{t−1} = α_i + β^k DS_{i,t} + θ X_{i,t} + ε_{i,t}, estimated by OLS with country fixed effects and robust standard errors clustered at country level.
- Nonlinearities explored via smooth transition (STAR) style weighting function F(z_{i,t}) using initial economic/fiscal conditions (normalized z).

### V. Baseline (unconditional) empirical findings
- Total (household + NFC + government) debt surge:
  - Real GDP: on average 2 percent of GDP lower after 5 years relative to no debt surge.
  - Potential GDP: about 1.5 percent lower after 5 years.
- Public (government) debt surges:
  - Real GDP: tends to be lower by 3–4 percent in the medium term after a public debt surge.
  - Potential GDP: lower by about 1.5 percent after 5 years.
- Private debt surges:
  - Household: no strong initial effect on real GDP; some medium-term decline but not statistically robust at 90 percent CI.
  - NFC: only weak evidence of lower GDP over time; higher uncertainty around estimates.
- Largest-surges analysis (large defined as > mean + 2 std and at least 1.5 percentage points of GDP) produces broadly similar results.

### VI. Results conditional on macro-fiscal state
- Conditional on initial output gap (recession vs expansion):
  - Public debt surges in recessions: growth after a surge tends to be higher than the unconditional case (consistent with counter-cyclical fiscal responses), but not necessarily above the no-surge case.
  - Public debt surges in expansions (large positive output gap): growth tends to be lower after a surge.
  - Private debt surges: can temporarily boost output if initiated during expansions, but effects often reverse over time.
- Conditional on initial total debt (low vs high leverage):
  - If total debt levels are high: debt surges associated with worse outcomes — GDP on average 4 percent lower after 5 years relative to no surge.
  - Unconditional comparison: GDP about 2 percent lower after 5 years.
  - If total leverage is low: debt surges may be associated with higher real growth for a few years (effects tend to die down).
  - Public debt surges: negative effect regardless of initial total leverage; some evidence of stronger medium-term negative impact when initial debt is low (as debt rises).
  - Private debt surges: beneficial effects when initial leverage is low, detrimental when initial leverage is high; the leverage channel is particularly significant for household debt.
- Conditional on contemporaneous interest rates:
  - Short-term impact similar regardless of current borrowing costs.
  - Some evidence that GDP may be persistently lower after debt surges when contemporaneous interest rates are low.

### VII. Channels — components of aggregate demand (unconditional)
Summary from Table 2 (short term = ST; medium term = MT). Percent changes refer to deviations from baseline (no surge).
- Household surge:
  - Private consumption: Positive effect ST
  - Private investment: Lower MT (5%)
  - Public investment: No significant impact
  - Exports: Lower ST
  - Imports: Lower MT
- Corporate surge:
  - Public consumption: Lower MT (3%)
  - Private investment: Lower (6%)
  - Public investment: Lower (10%)
  - Exports: Higher MT (4%)
  - Imports: Higher ST
- Government surge:
  - Private consumption: Lower (5%)
  - Public consumption: Lower (2%) in first years
  - Private investment: Lower (8%)
  - Public investment: Lower (15%)
  - Exports: Lower ST; higher MT
  - Imports: Lower (4%)
- Additional channel findings:
  - Public and private investment are especially weak after debt surges; public investment is 15 percent lower than baseline following public debt surges.
  - Corporate debt surges are followed by lower private investment and markedly lower public investment (−10%).
  - Household debt surges have smaller overall impacts: temporary increase in private consumption, medium-term lower private investment; some decline in public consumption; exports temporarily lower, imports lower in medium term.

### VIII. Robustness checks
- Controls included: up to two lags of dependent variable and surge shocks; country-specific time trends; simultaneous inclusion of all three surge types.
- Additional checks: control for WEO one-year-ahead growth expectations and budget balance-to-GDP; Driscoll-Kraay robust standard errors for cross-sectional dependence.
- Sensitivity exercises (available upon request) included: excluding post-GFC period; controlling for sovereign rating scores; restricting to central government surges associated with downgrades; excluding currency devaluation years.
- Main qualitative conclusions are robust across these exercises.

### IX. Key policy-relevant takeaways
- Output is persistently lower after total debt surges, but the magnitude and persistence depend on the debt type and initial macro-fiscal conditions.
- Public debt surges are most consistently associated with large and persistent negative outcomes for real and potential GDP.
- Private debt surges can be less damaging or even temporarily supportive of growth if initial total leverage is low; they are more harmful when leverage is already high.
- Investment (both private and public) is the primary margin through which debt surges reduce future growth; public investment falls substantially after public debt surges.
- Low initial debt provides more fiscal space to borrow in crises without jeopardizing future growth; prudent policies and buffers matter.
- Monitoring and prevention of excessive private-sector leveraging is important, as excess private leverage appears especially detrimental to future growth.

*International Monetary Fund — Chapter: "2. Debt Surges and Components of GDP (unconditional)".*

### References

### References

### Public debt dynamics and debt overhang
- Abbas, S., N. Belhocine, A. El-Ganainy, and M. Horton (2011), “Historical Patterns and Dynamics of Public Debt: Evidence from a New Database,” IMF Economic Review, 59(4).
- Borensztein, Eduardo. 1990. “Debt Overhang, Credit Rationing, and Investment,” Journal of Development Economics 32, 315-335.  
- Blanchard, O. 2019. “Public Debt and Low Interest Rates,” American Economic Review 109(4), pp. 1197–1229.
- Reinhart, C., and K. Rogoff. 2010. “Growth in a Time of Debt”, American Economic Review 100(2): 573-78
- Reinhart, C. M., V. Reinhart, and K. Rogoff. 2012. “Public Debt Overhangs: Advanced-Economy Episodes Since 1800.” Journal of Economic Perspectives 26 (3): 69-86.
- Krugman, Paul. 1988. “Financing vs. forgiving a debt overhang: Some analytical notes,” NBER Working paper no. 2486 (National Bureau of Economic Research, Cambridge, MA).
- Solberg, R.L. 1988. Sovereign Rescheduling: Risk and Portfolio Management. Routledge.

### Fiscal policy, public investment, and macroeconomic effects
- Abiad, A., D. Furceri, and P. Topalova. 2015. “The macroeconomic effects of public investment: evidence from advanced economies”, Journal of Macroeconomics, 50, 224-240.
- Auerbach, A., and Y. Gorodnichenko. 2012. “Output Spillovers from Fiscal Policy”, American Economic Review, 103(3), 141-146.
- Auerbach, A., and Y. Gorodnichenko. 2013. “Measuring the Output Responses to Fiscal Policy”, American Economic Journal: Economic Policy, 4 (2), 1–27.
- Bachmann, R., and E.R. Sims. 2012. “Confidence and the Transmission of Government Spending Shocks”, Journal of Monetary Economics, 59(3), 235–49
- Giordano, R., S. Momigliano, S. Neri, and R. Perotti. 2007. ‘The Effects of Fiscal Policy in Italy: Evidence from a VAR Model’. European Journal of Political Economy, 23(3), 707–33
- Romer, C.D., and D.H. Romer. 2010. ‘The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks’. American Economic Review, 100(3), 763–801
- Moreno-Badia, Marialuz, Paulo Medas, Pranav Gupta, and Yuan Xiang.2020. “Debt is Not Free,” IMF Working Paper 20/1 (Washington: International Monetary Fund).
- International Monetary Fund, 2021, April, Fiscal Monitor: A Fair Shot

### Debt surges, indebtedness, and financial stress
- Jaramillo, L., E. Kimani, C. Mulas-Granados. 2016. “The Blind Side of Public Debt Surges”, IMF Working Paper 16/202 (Washington: International Monetary Fund)
- Jaramillo, L., C. Mulas-Granados, J. T. Jalles. 2017. “Debt Surges, Blind Spots and Financial Stress”, International Journal of Finance and Economics, 22(4), 421-437.
- Kose, Ayhan Franziska Ohnsorge, Carmen M. Reinhart and Kenneth Rogoff, 2021, “The Aftermath of Debt Surges,” Centre for Economic Policy Research Discussion Paper DP16537.
- Asonuma, T., M. Chamon, A. Erce, and A. Sasahara. 2019. “Costs of Sovereign Defaults: Restructuring Strategies, Bank Distress and the Capital Inflow-Credit Channel,” IMF Working Paper No. 19/69.
- Bornhorst, Fabian, and Marta Ruiz Arranz. 2013. “Indebtedness and Deleveraging in the euro Area”, 2013 Article IV Consultation on euro Area Polices: Selected Issues Paper, Chapter 3, IMF Country Report No. 13/206 (Washington).
- Mbaye, S., M. Moreno-Badia, and K. Chae. 2018. “Global Debt Database: Methodology and Sources,” IMF Working Paper 18/111 (Washington: International Monetary Fund)
- Bernardini, Marco and Lorenzo Forni. 2020. “Private and Public Debt Interlinkages in Bad Times,” Journal of International Money and Finance, 109: 102239
- Lim, Jamus J. 2019. “Growth in the shadow of debt,” Journal of Banking and Finance, 103: 98–112
- Moreno-Badia, Marialuz, Paulo Medas, Pranav Gupta, and Yuan Xiang.2020. “Debt is Not Free,” IMF Working Paper 20/1 (Washington: International Monetary Fund).

### Methodology, econometrics, and data tools
- Granger, C., and T. Terasvirta. 1993. “Modeling Nonlinear Economic Relationships”. Oxford University Press.
- Hamilton, James. 2018. “Why You Should Never Use the Hodrick-Prescott Filter,” The Review of Economics and Statistics, 100(5): 831–843
- Jordà, O. 2005. “Estimation and Inference of Impulse Responses by Local Projections,” American Economic Review, 95(1), 161–82.
- Jordà, O., Martin Kornejew, Moritz Schularick, and Alan M. Taylor. 2020, “Zombies at Large? Corporate Debt Overhang and the Macroeconomy,” NBER Working Paper No. 28197.
- Sims, C. A., and T. Zha. 1999. “Error Bands for Impulse Responses,” Econometrica, 67(5), 1113–1156.
- Teulings, C. and N. Zubanov. 2010. “Is economic recovery a myth? Robust estimation of impulse responses”, CESifo Working Paper, No. 3027, Center for Economic Studies and ifo Institute (CESifo), Munich
- Weber, A. (2012), “Stock-Flow Adjustments and Fiscal Transparency: A Cross-Country Comparison,” IMF Working Paper 12/39 (Washington: International Monetary Fund).
- Panizza, H., and A. Presbitero. 2013. “Public debt and economic growth in advanced economies: A survey,” Swiss Journal of Economics and Statistics, 149: 175–204.
- Borensztein, Eduardo. 1990. “Debt Overhang, Credit Rationing, and Investment,” Journal of Development Economics 32, 315-335.  

### Other relevant empirical and theoretical contributions
- Mian, Atif, and Amir Sufi. 2014. House of Debt. The University of Chicago Press.
- Gomez-Puig, M., and S. Sosvilla-Rivero. 2015. “The causal relationship between debt and growth in EMU countries,” Journal of Policy Modeling 37: 974–989
- Bernandini, Marco and Lorenzo Forni. 2020. “Private and Public Debt Interlinkages in Bad Times,” Journal of International Money and Finance, 109: 102239
- Borensztein, Eduardo. 1990. “Debt Overhang, Credit Rationing, and Investment,” Journal of Development Economics 32, 315-335.  
- Krugman, Paul. 1988. “Financing vs. forgiving a debt overhang: Some analytical notes,” NBER Working paper no. 2486 (National Bureau of Economic Research, Cambridge, MA).

*Source: wpiea2022159-print-pdf - References, https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022159-print-pdf.pdf*

### Annex I. Robustness Exercises

### Annex I. Robustness Exercises

### Robustness (time trends): Effect of Debt Surges on Real GDP and Potential Output (Figure A1)
- Scope: Impact from Debt Surges on real and potential GDP for three surge types: HH surge, NFC surge, GOV surge.
- Variables shown: real GDP and Potential GDP responses for HH surge, NFC surge, GOV surge.
- Time axis: x-axis in years; t=0 is the year of the debt surge shock; t=1 is the first year of impact.
- Confidence bands: Solid black lines denote the response to a debt surge shock, dark grey area denotes 90 percent confidence bands while light gray area denotes 68 percent confidence bands, based on standard errors clustered at country level.
- Axis ranges (as displayed): multiple panels show vertical scales including, for example, ranges with values such as -3, -2, -1, 0, 1, 2, 3, 4, 5 on the y-axes for several panels; other panels show ranges such as -5 to 5 and -2.5 to 5.

### Robustness (omitted variable bias): Effect of Debt Surges on Real GDP and Potential Output (Figure A2)
- Scope: Same response variables as Figure A1, evaluated under an omitted variable bias robustness exercise.
- Time axis: x-axis in years; t=0 is the year of the debt surge shock; t=1 is the first year of impact.
- Confidence bands: Solid black lines denote the response to a debt surge shock, dark grey area denotes 90 percent confidence bands while light gray area denotes 68 percent confidence bands, based on standard errors clustered at country level.
- Axis ranges (as displayed): panels include y-axis values such as -8, -6, -4, -2, 0, 1, 2, 3, 4, 5 and other ranges similar to Figure A1.

### Robustness (controlling for macro and fiscal expectations): Effect of Debt Surges on Real GDP and Potential Output (Figure A3)
- Scope: Responses controlling for macro and fiscal expectations; panels for real GDP and Potential GDP for HH surge, NFC surge, GOV surge.
- Time axis: x-axis in years; t=0 is the year of the debt surge shock; t=1 is the first year of impact.
- Confidence bands: Solid black lines denote the response to a debt surge shock, dark grey area denotes 90 percent confidence bands while light gray area denotes 68 percent confidence bands, based on standard errors clustered at country level.
- Axis ranges (as displayed): panels include y-axis values such as -3, -2, -1, 0, 1, 2, 3, 4, 5 and -6, -4, -2, 0, 1, 2, 3, 4, 5.

### Robustness (Driscoll-Kraay robust SE): Effect of Debt Surges on Real GDP and Potential Output (Figure A4)
- Scope: Responses using Driscoll-Kraay robust standard errors; panels for real GDP and Potential GDP for HH surge, NFC surge, GOV surge.
- Time axis: x-axis in years; t=0 is the year of the debt surge shock; t=1 is the first year of impact.
- Confidence bands: Solid black lines denote the response to a debt surge shock, dark grey area denotes 90 percent confidence bands while light gray area denotes 68 percent confidence bands, based on standard errors clustered at country level.
- Axis ranges (as displayed): panels include y-axis values such as -5 to 5, -3 to 5, -1.5 to 5 and similar ranges used across panels.

### Effect of Debt Surges on Real GDP depending on initial total debt levels (Auerbach-Gorodnichenko correction) (Figure A5)
- Estimation: estimation of equation 5 using real GDP growth as z in F(z).
- Time axis: x-axis in years; t=0 is the year of the debt surge shock; t=1 is the first year of impact.
- Methodological notes:
  - Uses estimates of output gap by applying HP filter.
  - The case when the initial output gap is low is denominated “recessions”, while when output is positive and large it called “expansions”.
  - The red line denotes the unconditional baseline result from estimating equation (4).
- Panels: separate panels for HH surge with low indebtedness, HH surge with high indebtedness, NFC surge with low indebtedness, NFC surge with high indebtedness, GOV surge with low indebtedness, GOV surge with high indebtedness.
- Confidence bands: Solid black lines denote the response to a debt surge shock, dark grey area denotes 90 percent confidence bands while light gray area denotes 68 percent confidence bands, based on standard errors clustered at country level.
- Axis ranges (as displayed): panels show y-axis values including -10, -8, -6, -5, -4, -2, 0, 2, 4, 5 and positive ranges such as 0, 2, 4, 6.

*Source: Annex I. Robustness Exercises, Economic Growth After Debt Surges — Working Paper No. WP/2022/159*

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_Source: https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022159-print-pdf.pdf_