Public Debt and Macroeconomic Dynamics: A Simulation Model with Variables of Interest Rate, Economic Growth, Domestic Consumption, Government Expenditure, and Net Exports

This research explores causal relationships among public debt, interest rates, economic growth, domestic consumption, government spending, and net exports. It employs a panel vector model to investigate these relationships, assuming that all variables are endogenous and influenced by their own past values and those of other variables. The findings indicate that public debt negatively affects most variables, suggesting it hinders the economies of Indonesia, the Philippines, Malaysia, and Thailand. Rising interest rates also disrupt exports in ASEAN member countries. Surprisingly, government spending increases public debt. Consumption in these regions encourages exports through international trade agreements, and exports, in turn, boost government spending and state income. Economic growth, as measured by GDP, drives all variables, underscoring its role in both the monetary and real sectors of these economies. However, it’s important to note that data availability and the research period were limitations. Based on the results, it’s recommended that the government exercise caution in increasing public debt and balance short-term economic pressures with long-term economic drivers to mitigate debt’s impact on the economy.