This thesis investigates the two-way causal relationship between General Government Debt and real GDP growth for the 38 OECD countries. Building on a paper by Jacobs et al. (2020), this thesis aims to discover bidirectional causality between GDP growth and Debt, whilst also considering the causality between the variables mentioned and Final Consumption. These aims will be achieved using a model increasing popular within the space of applied macroeconomics, this being a Panel Vector Auto Regression. The use of the PVAR and granger causality will enable us to discover the dynamic relationships between GDP growth, Government Debt and Final Consumption. In addition, with the use of impulse response functions, this paper aims to forecast the impact a one standard deviation shock has on each variable, followed by a thorough scrutinization of the theory that could contradict or support the results. The results in this paper show bi-directional causality between Government debt and GDP growth within the Bivariate model and Government Debt and GDP growth Granger causes Final Consumption within the tri-variate model.
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