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

• Authors: Bikár Miloš , Hodula Martin
• Languages of publication: 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.

Keywords

EN

GOVERNMENT DEBT; MONETARY POLICY; THRESHOLD VAR; CZECH REPUBLIC

• Publisher: Institute of Slovak and World Economics and Institute for Forecasting, Slovak Academy of Sciences
• Journal: Ekonomický časopis (Journal of Economics)
• Year: 2018
• Volume: 66
• Issue: 6
• Pages: 561 – 579

Contributors

author

Bikár Miloš

• University of Economics in Bratislava, Faculty of Business Management, Dolnozemská cesta 1/b, 852 35 Bratislava, Slovak Republic

author

Hodula Martin