Leveraging interest-growth differentials: hidden effects of government financial assets in the European Union

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dc.contributor.authorWagner, Clarisse
dc.contributor.authorAlves, José
dc.date.accessioned2026-04-14T18:50:27Z
dc.date.issued2025-12-01
dc.description.abstractPurpose: Given that government financial assets represent a large proportion of gross debt accumulation, this study examines their impact on debt leveraging and potential returns on the gap between interest rates and economic growth (r-g). Design/methodology/approach: This research focuses on the co-movements of r-g differentials, government financial assets and the primary deficit through a channel of gross debt, investment, external balance and ratings, using a sample of 27 European Union economies from 2000 to 2022. The following co-integration methods were estimated: (1) for the aggregate, panel quantile autoregressive distributed lags (QARDL), ARDL- pooled mean group (PMG) for panel data, implemented with a (PMG) and (2) ARDL-error correction (EC) for individual countries at a granular level. Findings: While government financial assets drive short- and long-run debt trajectories, granular country heterogeneities reveal differentiated results for financial assets leveraging potential returns on the differential between interest rates and output growth (r-g). Government financial assets may enhance r-g, but may risk even undermining gains from primary deficit consolidation efforts. By comparing aggregate estimations with country granular approaches, outliers from non-statistically significant estimations reveal the epistemological limits of aggregation, statistics and probability theory, warning against overconfidence in such mere guidance tools, which are not safeguarding guarantees. Research limitations/implications: Statistical asymptotics and instability of non-independent and identical distributions may underestimate variance. Furthermore, skewness and leptokurtosis may benefit from extreme value theory. In addition, technological changes, policy regimes, geopolitical events and economic crises can change in-built long-run relationships. Practical implications: Heterogeneity of government financial assets effects depend on socio and macrofinance conditions, advocating the principle of subsidiarity. Financial assets, such as sovereign wealth funds linked to natural resources, oil in Norway, copper in Chile, may benefit from financial assets assessments. The strengthening of democratic accountability calls for transparency about financial assets contribution to debt trajectories, r-g effects and risks of potential undermining primary deficit consolidations. Accounting reporting should appropriately disclose changes in assets value from exposition to market volatility, accumulation of holding costs due to constraints to asset liquidation, due to non-active secondary markets, or long investment horizons. Practical implications: Heterogeneity of government financial assets effects depend on socio and macrofinance conditions, advocating the principle of subsidiarity. Financial assets, such as sovereign wealth funds linked to natural resources, oil in Norway, copper in Chile, may benefit from financial assets assessments. The strengthening of democratic accountability calls for transparency about financial assets contribution to debt trajectories, r-g effects and risks of potential undermining primary deficit consolidations. Accounting reporting should appropriately disclose changes in assets value from exposition to market volatility, accumulation of holding costs due to constraints to asset liquidation, due to non-active secondary markets, or long investment horizons. Originality/value: Rather than the traditional emphasis on government debt, this study examines the leverage effect on the gap between interest rates and economic growth (r-g differential). While the literature primarily addresses stock-flow adjustments (SFAs), the focus is narrowed to financial assets underlying government interventions on the supply side of the economy. Evidence is provided on the risks of financial assets undermining primary deficit consolidation efforts. While the literature highlights the short and medium terms, estimates are divided into short-term dynamics and hypothetical in-built long-run cointegrations. Panel aggregation is compared with granular estimates, uncovering heterogeneities and supporting governance subsidiarity. Support for statistical pluralism is provided by comparing results and methodological limitations.
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dc.identifier.citationWagner, C., & Alves, J. (2025). Leveraging interest-growth differentials: hidden effects of government financial assets in the European Union. Journal of Economics, Finance and Administrative Science, 30(60), 298–317. Retrieved from https://revistas.esan.edu.pe/index.php/jefas/article/view/894
dc.identifier.doihttps://doi.org/10.1108/JEFAS-03-2024-0090
dc.identifier.urihttps://hdl.handle.net/20.500.12640/4937
dc.languageInglés
dc.language.isoeng
dc.publisherUniversidad ESAN
dc.publisher.countryPE
dc.relation.ispartofurn:issn:2218-0648
dc.rightshttps://purl.org/coar/access_right/c_abf2
dc.subjectPublic debten_EN
dc.subjectFinancial assetsen_EN
dc.subjectQARDLen_EN
dc.subjectARDLen_EN
dc.subjectPMGen_EN
dc.subjectDeuda públicaes_ES
dc.subjectActivos financieroses_ES
dc.subject.ocdehttps://purl.org/pe-repo/ocde/ford#5.02.04
dc.titleLeveraging interest-growth differentials: hidden effects of government financial assets in the European Union
dc.typehttps://purl.org/coar/resource_type/c_6501
dc.type.otherArtículo
dc.type.versionhttp://purl.org/coar/version/c_970fb48d4fbd8a85
local.acceso.esanAcceso abierto
oaire.citation.endPage317
oaire.citation.issue60
oaire.citation.startPage298
oaire.citation.titleJournal of Economics, Finance and Administrative Science
oaire.citation.volume30

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JEFAS Vol. 30 Nº 60 (2025)