Debt, growth and inflation in large European economies: a vector auto-regression analysis

This gaper attempts to empirically test the hypothesis that whether debt ma tters in the EU. This has been performed by examining the potential adverse effects of debt in large European economies on investment, inflation and g rowth. Using the hybrid cointegration and vector autoregressive models, the findings, based on the period 1970-97, suggest that debt causes significan t adverse effects on investment, but its impact on growth is not clear-cut, Moreover, debt appears to be inflationary in most cases in the long run, t hough produces no clear short run pattern on inflation.