Innovation, Public Debt and Monetization: an Empirical Analysis

D'Andrea, Sara (2023): Innovation, Public Debt and Monetization: an Empirical Analysis.

Abstract

This paper explores the relationship between public debt and technological innovation through panel threshold regressions on a sample of 15 industrialized countries from 2000 to 2019. It also asks what impact debt monetization (expressed as the amount of debt held at the central bank) has on this nexus. Our results show strong nonlinearities in the sense that an increase in debt above a certain threshold negatively impacts the rate of innovation, while below it has positive effects. Monetizing debt contributes positively to innovation if it is below the "debt turning point", while this becomes detrimental for debt-to-GDP ratios above the threshold. The same inverted-U-shaped relationship is found between the monetization rate and innovation rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Public debt, Innovation, Debt monetization, Panel threshold regression
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

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