THE IMPACT OF PUBLIC DEBT ON THE LONG-TERM INTEREST RATES IN THE EURO AREA MEMBER COUNTRIES DURING 2003-2010

Piotr Misztal

DOI: http://dx.doi.org/10.12775/OeC.2011.011

Abstract


The main aim of the article is to analyze the relationship between public debt and the real, long-term interest rates in the euro area member countries during 2003-2010. The first part dealt with theoretical analysis and the most important results of empirical studies concerning the relationship between public debt and the real, long-term interest rates. In the next part of article, there wereexamined the relationships between public debt and the real, long-term interest rates in the euro area countries by using the Vector Autoregression Model (VAR). There were estimated elasticity coefficients of the real, long-term interest rates to public debt and measured the impactstrength of public debt to changes in the real, long-term interest rate in the euro area member countries using the impulse response function. This was followed by decomposition of the real, long-term interest rate to estimate the impact of public debt and the real, long-term interest rate changes on the volatility of the real, long-term interest rate in the euro area member countries.

Keywords


budget debt; bond interest rates; VAR model

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