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Relevance of the Public Debt-to-GDP Ratio Correlation with Significant Macroeconomic Indicators

The rise of the public debt-to-GDP ratio in the aftermath of the 2008 crisis coincides with the rise of several other negative macroeconomic indicators. These are indicators such as: inflation, the unemployment rate and primary government budget deficit. This article aims to understand how public debt-to-GDP ratio correlates with other significant macroeconomic indicators. It accomplishes this goal by calculating the Pearson correlation coefficient and testing the research hypotheses at p=0.05 and p=0.01 for the original 15 member states of the EU. In order to identify how the change in public debt- to-GDP ratio might influence the unemployment rate a linear regression analysis is conducted for the 5 member-states of EU 15 that have the highest public debt-to-GDP ratio. The article concludes that there is statistically significant correlation between public debt-to- GDP ratio and the rate of unemployment. The linear regression analysis further proves that there is a strong relationship between public debt-to-GDP ratio and the unemployment rate for the 5 sample countries. If the public debt-to-GDP ratio would drastically increase as in 2012 or 2013 the linear functions predict that the unemployment rate for Portugal, Greece, Ireland and Italy would averagely increase by 2.7% in comparison to the 2014 unemployment rate.

public debt ; EU 15 ; the fiscal criteria of Maastricht ; macroeconomic imbalances

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