Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/299770 
Year of Publication: 
2022
Series/Report no.: 
Working Papers in Economics and Management No. 05-2022
Publisher: 
Bielefeld University, Faculty of Business Administration and Economics, Bielefeld
Abstract: 
With this paper, our objective is to empirically study public debt sustainability by estimating a fiscal reaction function where the primary balance relative to GDP is assumed to be a function of the public debt to GDP ratio of the previous year and of other macroeconomic variables. In particular, we take into account the effects of monetary policy on the primary budget of the government by including the real long term interest rate and the in ation rate, measured as the change in the GDP price de ator. We resort to the fixed effects and to the random effects models for a panel of 12 euro area economies from 1996 to 2020. We find statistical evidence for sustainable debt policies and detect that both monetary policy variables are positively correlated with the primary balance to GDP ratio. This holds both for the fixed and for the random effects estimation, when those variables are included simultaneously.
Subjects: 
Monetary policy
fiscal policy
euro area
primary balance
public debt
sustainability
interest rate
inflation rate
JEL: 
E43
E52
E62
E63
H61
H62
H63
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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