What impacts what: a battle between private and public debts and GDP

Abstract

Since the burst of the financial crisis, it became mandatory to understand the dynamics between public debt and GDP. However, the private debt and GDP correlation was overlooked. This paper aims to overcome this breach, by exploring the casual relationship between private and public debts and economic growth, for a panel of 21 OECD countries between 1995 and 2016. The empirical results suggest that an increase in GDP growth, ceteris paribus, affects positively the private debt growth whilst lowering public debt growth. Nevertheless, the results are somewhat different between countries that participate or not in the European Monetary Union.