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

Ales Melecky and Martin Melecký

MPRA Paper from University Library of Munich, Germany

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 (search for similar items in EconPapers)
JEL-codes: E62 H68 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cis, nep-mac and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:34114

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