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BOK Working Paper No.2020-15, International Co-movements and Determinants of Public Debt

Economic Research Institute (82-2-759-4264) 2020.07.01 3632

Title : International Co-movements and Determinants of Public Debt

Author : Hasan Isomitdinov(The University of Alabama), Vladimir Arčabić(University of Zagreb), Junsoo Lee(The University of Alabama), Youngjin Yun(BOK)


This paper provides evidence of significant international co-movements of public debt in the form of the common global and regional factors. International events such as the global financial crisis and regional sovereign debt crises suggest the existence of global and regional factors that can generate synchronizations of public debt across different countries. In contrast with previous studies that are focused mostly on domestic economic fundamentals in explaining public debt, this paper finds distinct global factors in the public debt-to-GDP ratio, both from principal components analysis and the Bayesian dynamic factor model. We show that the global factor accounts for a significant fraction of the variation of public debt often more substantial than those explained by domestic variables in many countries. We also find significant regional factors in public debt, especially for the Eurozone member states.