Debt, economic growth, and interest rates : an empirical study of the Swiss case, presenting a new long-term dataset: 1894-2014

In this paper, relations between public debt, economic growth, and long-term interest rates in Switzerland from 1894 to 2014 are examined. For this purpose, an original long-term dataset on the general gross public debt in Switzerland, namely the aggregation of the Confederation gross debt, the cantons’ gross debts, and the municipal gross debts, was reconstructed. Three different statistical approaches are performed to study relations between this aggregated debt, economic growth, and interest rates. The first consists of the study of correlations between GDP-weighted variables, the second is the study of the correlation between residuals of ARIMA time series models, and the last one studies vector autoregression (VAR) models, allowing us to test Granger causalities between variables. Every approach is performed on the whole time period but also on boom phases and recession phases independently. All the results suggest that the public debt during this period in Switzerland did not have a negative impact on economic growth and did not raise long-term interest rates.