Posted

October 27, 2011 11:17:00 PM

Date

2011-10

Author

Melecky, Ales and Melecky, Martin

Affiliation

Technical University of Ostrava

Title

Analyzing the Impact of Macroeconomic Shocks on Public Debt Dynamics: An Application to the Czech Republic

Summary /
Abstract

The global financial crisis and its ramification into the fiscal area have demonstrated the importance of regular assessment and monitoring of fiscal vulnerabilities, including the sustainability of sovereign debt. This paper extends the analytical framework of Favero and Giavazzi (2007) to facilitate the analysis of the effects of macroeconomic shocks on public debt dynamics in an open economy. It then applies this framework using the data for the Czech Republic and derives some policy implications from such an analysis. The modeling framework nests a linear structural vector auto-regression (SVAR) model estimated with short-run identifying restrictions and a non-linear equation describing the public debt dynamics. The main variables of the system include GDP growth, inflation, the effective interest rate on government debt, government expenditures and revenues, the exchange rate and government debt. The utilized estimation method is the Bayesian approach.

Keywords

Macroeconomic Shocks, Non-linear Public Debt Dynamics, Open Economy, Czech Republic, Structural Vector Autoregression Model, Bayesian Estimation.

URL

http://mpra.ub.uni-muenchen.de/34114/1/MPRA_paper_34114.pdf

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