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2018 | 66 | 6 | 561 – 579
Article title

NON-LINEAR MONETARY POLICY MODELLING WITH GOVERNMENT DEBT AS A THRESHOLD: THE CASE OF THE CZECH REPUBLIC

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EN
Abstracts
EN
In this paper, we examine the extent to which monetary policy might be constrained by the evolution of government indebtedness. We employ a threshold vector auto regression (TVAR) model to capture the possible asymmetries in the relationship between monetary policy and the real economy, corresponding to a switch between low and high growth rates of the government debt-to-GDP ratio. The analysis is performed on Czech data over the 2001 – 2016 periods. The results show that the reaction of a central bank to macroeconomic shocks can be regime-dependent. We find that a rising government debt could constrain monetary policy, which manifests through an altered monetary policy transmission to the real economy. Overall, our study demonstrates the advantages of using a non-linear approach to study the fiscal and monetary policy interactions.
Contributors
author
  • University of Economics in Bratislava, Faculty of Business Management, Dolnozemská cesta 1/b, 852 35 Bratislava, Slovak Republic
author
References
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YADDA identifier
bwmeta1.element.cejsh-ad4c663b-0f00-4c78-9c1a-c2f41305a86c
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