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


  • Melecky, Ales
  • Melecky, Martin


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.

Suggested Citation

  • Melecky, Ales & Melecky, Martin, 2011. "Analyzing the Impact of Macroeconomic Shocks on Public Debt Dynamics: An Application to the Czech Republic," MPRA Paper 34114, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:34114

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    References listed on IDEAS

    1. Favero, Carlo A. & Giavazzi, Francesco, 2007. "Debt and the Effects of Fiscal Policy," CEPR Discussion Papers 6092, C.E.P.R. Discussion Papers.
    2. Martin Melecky, 2010. "Currency Allocation of Public External Debt and Synchronization Indicators of Exchange Rate Volatility," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 52(1), pages 104-129, March.
    3. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2008. "Empirical Properties Of Closed- And Open-Economy Dsge Models Of The Euro Area," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S1), pages 2-19, April.
    4. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
    5. Melecky, Martin, 2007. "A cross-country analysis of public debt management strategies," Policy Research Working Paper Series 4287, The World Bank.
    6. Dybczak, Kamil & Melecky, Martin, 2011. "Macroeconomic Shocks and the Fiscal Stance within the EU: A Panel Regression Analysis," MPRA Paper 33684, University Library of Munich, Germany.
    7. Melecky, Ales & Skutova, Marketa, 2011. "Fiskální pravidla v zemích Visegrádské čtyřky
      [Fiscal Rules in the Visegrad Countries]
      ," MPRA Paper 34028, University Library of Munich, Germany.
    8. Melecky, Martin & Raddatz, Claudio, 2011. "How do governments respond after catastrophes ? natural-disaster shocks and the fiscal stance," Policy Research Working Paper Series 5564, The World Bank.
    9. Melecky, Martin, 2007. "Choosing the currency structure for sovereign debt : a review of current approaches," Policy Research Working Paper Series 4246, The World Bank.
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    Cited by:

    1. Stanova, Nadja, 2015. "Effects of fiscal shocks in new EU members estimated from a SVARX model with debt feedback," MPRA Paper 63148, University Library of Munich, Germany.

    More about this item


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

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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