Euler Testing Ricardo and Barro in the EU
JOURNAL
YEAR
Sep 21, 2008
TYPE
Articles in journals
AUTHORS
Afonso, A.
VOL Nº
5
PAGES
12
ABSTRACT
According to Keynesian economics wisdom, government debt has an effect on the economy since consumers see government debt as net wealth. However, according to the debt neutrality hypothesis of Ricardo (1817), popularised by Barro (1974), such effects would be absent. This paper’s results, obtained from Euler equation estimations using a panel data approach, indicate that it would be wise to reject the debt neutrality hypothesis for the EU and that higher government indebtedness could actually deter private consumption.
JEL CLASS
KEYWORDS
Debt neutrality,Private consumption,EU,Panel data