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How Does Public Debt affect the Indian Macroeconomy? A Structural VAR Approach

Ranjan Kumar Mohanty () and Sidheswar Panda ()
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Ranjan Kumar Mohanty: National Institute of Public Finance and Policy
Sidheswar Panda: IIT, Indore

Working Papers from National Institute of Public Finance and Policy

Abstract: This study investigates the macroeconomic effects of public debt in India using a Struc-tural Vector Autoregression (SVAR) framework for the period from 1980 to 2017. The objective of this study is to examine the impact of several types of public debt on economic growth, investment, interest rate and inflation in India. The results of the Impulse re-sponse functions show that public debt has an adverse impact on economic growth, a pos-itive impact on long-term interest rate and a mixed response (both negative and positive) on investment and inflation in India. It is also found that the domestic debt has a more adverse impact on the economy than external debt in India. The estimated variance de-composition analysis shows that much of the variations among selected macro variables are explained by public debt and growth in India. The study suggests that public debt, especially the domestic debt should be controlled and used in a more productive manner in order to have a favourable impact on the economy.

Keywords: Public Debt; Internal Debt; External Debt; Economic Growth; Structural VAR Approach; India. (search for similar items in EconPapers)
JEL-codes: C40 H83 O40 (search for similar items in EconPapers)
Pages: 34
Date: 2019-01
Note: Working Paper 250, 2019
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