Analyzing the Impact of Macroeconomic Shocks on Public Debt Dynamics: An Application to the Czech Republic
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.
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- Favero, Carlo A. & Giavazzi, Francesco, 2007.
"Debt and the Effects of Fiscal Policy,"
CEPR Discussion Papers
6092, C.E.P.R. Discussion Papers.
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- 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.
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- Melecky, Martin, 2007. "Choosing the currency structure for sovereign debt : a review of current approaches," Policy Research Working Paper Series 4246, The World Bank. Full references (including those not matched with items on IDEAS)
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