IDEAS home Printed from https://ideas.repec.org/p/eea/boewps/wp2025-06.html
   My bibliography  Save this paper

The effects of public debt on public and private interest rates in the euro area

Author

Listed:
  • Gerda Kirpson
  • Karsten. Staehr

Abstract

This study uses data from the euro area to determine the effects of the stock of government debt on the interest rates paid on government debt and on private bank debt. The empirical analysis applies fixed effect instrumental variables on an annual panel running from 1999 to 2024. The results are markedly different for public and private interest rates. An increase in the government debt-to-GDP ratio of 1 percentage point is associated with an increase of around 3 basis points in the yield on public debt, though the effect varies somewhat depending on the sample and the specification. The effect of government debt on the interest rate on new private bank loans is 0.5–2 basis points, but the results are only reasonably robust for housing loans and for loans with longer maturity, while the results for loans to the corporate sector, consumption loans and loans with shorter maturity are less robust.

Suggested Citation

  • Gerda Kirpson & Karsten. Staehr, 2025. "The effects of public debt on public and private interest rates in the euro area," Bank of Estonia Working Papers wp2025-06, Bank of Estonia, revised 22 Dec 2025.
    • Handle: RePEc:eea:boewps:wp2025-06
    as

    Download full text from publisher

    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//https://haldus.eestipank.ee/sites/default/files/2025-07/wp2025_06.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eea:boewps:wp2025-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peeter Luikmel (email available below). General contact details of provider: https://edirc.repec.org/data/epgovee.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.