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Published online by Cambridge University Press:  01 August 2018

Mattia Guerini*
OFCE - SciencesPo and Scuola Superiore Sant’Anna
Alessio Moneta
Scuola Superiore Sant’Anna
Mauro Napoletano
OFCE - SciencesPo, SKEMA Business School and Universitè Côte d’Azur and Scuola Superiore Sant’Anna
Andrea Roventini
Scuola Superiore Sant’Anna and OFCE - SciencesPo
Address correspondence to: Mattia Guerini, 60, rue Dostoievski 06902 Sophia-Antipolis Cedex, France; e-mail:


In this paper, we investigate the causal effects of public and private debts on US output dynamics. We estimate a battery of Cointegrated Structural Vector Autoregressive models, and we identify structural shocks by employing Independent Component Analysis, a data-driven technique which avoids ad-hoc identification choices. The econometric results suggest that the impact of debt on economic activity is Janus-faced. Public debt shocks have positive and persistent influence on economic activity. In contrast, rising private debt has a milder positive impact on gross domestic product, but it fades out over time. The analysis of the possible transmission mechanisms reveals that public debt crowds in private consumption and investment. In contrast, mortgage debt fuels consumption and output in the short-run, but shrinks them in the medium-run.

© Cambridge University Press 2018 

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We are indebted to Kevin D. Hoover, Herbert Dawid, Davide Fiaschi, and Fulvio Corsi for useful comments and suggestions on preliminary versions of the paper. Thanks also to the participants at the conferences WEHIA 2016 (Castellon de la Plana) and CRISIS 2016 (Ancona). MG, MN, and AR acknowledge financial support of the European Union Horizon 2020 research and innovation programme under grant agreements no. 649186 (ISIGrowth) as well as the financial support of the Horizon 2020 Framework Program of the European Union under the grant agreement no. 640772 – Project DOLFINS (Distributed Global Financial Systems for Society). AM acknowledges financial support from the Institute for New Economic Thinking under grant agreement INO15-00021.


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