Global shocks and the debt-growth nexus

This paper re-examines the relationship between debt and growth with and without the influence of global shocks for a panel of 22 economies. The analysis introduces an approach that accounts for the complexity of global factors and estimates the debt-to-growth and growth-to-debt nexus for household, corporate, and public debt from a purely idiosyncratic perspective. The results reveal a multifactor structure: global shocks drive variation in household and public debt, whereas corporate debt exhibits predominantly idiosyncratic dynamics. These global shocks alter the magnitude and statistical significance of the idiosyncratic debt-growth nexus, demonstrating their critical role in identifying the underlying relationship.