## Economic Growth After Debt Surges

_IMF Working Papers, July 29, 2022_

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**Canonical URL:** [Economic Growth After Debt Surges](https://www.imf.org/en/publications/wp/issues/2022/07/29/economic-growth-after-debt-surges-521357)

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## Bibliographic details
- Authors: João Tovar Jalles, Paulo A Medas
- Published: July 29, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400217227.001

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### Overview and Research Question
- Examines what happens to economic growth after debt surges.
- Applies a local projection method to a new dataset of debt surges in 190 countries between 1970 and 2020.
- Focuses on both private and public debt surges and their heterogeneous effects on output and expenditure components.

### Key Findings
- Debt surges tend to be followed by weaker economic growth and persistently lower output.
- The negative relationship between debt surges and future growth is not uniform across surge types or initial conditions.
- Surges in public debt tend to have the most negative impact on future growth prospects.
  - This adverse effect is particularly strong if the economy is already operating with a large positive output gap.
- Debt surges are more likely to be followed by weaker economic growth when initial debt levels are high, especially for private debt surges.
- Mechanisms through which debt surges impact future growth:
  - Public debt surges are associated with especially weaker private and public investment.
  - Both private and public consumption are also negatively affected after public debt surges.
  - Surges in corporate debt are followed by lower private and public investment.

### Methodology and Scope
- Empirical approach: local projection method.
- Dataset coverage: 190 countries between 1970 and 2020.
- Topics and measures considered: changes in debt, debt level, debt surge episodes, Real GDP, output gap, potential GDP, private consumption, public investment spending, and other national accounts variables.

### Policy-Relevant Implications
- Public debt surges warrant particular policy attention given their stronger association with subsequent declines in investment and consumption.
- Macro-financial conditions at the time of a surge (for example, the presence of a large positive output gap or high initial debt levels) matter for the outlook for growth and should inform policy responses.
- Monitoring corporate debt dynamics is important because corporate debt surges can depress both private and public investment.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2022/07/29/economic-growth-after-debt-surges-521357_