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A vector error correction model for the relationship between public debt and inflation in Germany

  • In the paper, the interaction between public debt and inflation including mutual impulse response will be analysed. The European sovereign debt crisis brought once again the focus on the consequences of public debt in combination with an expansive monetary policy for the development of consumer prices. Public deficits can lead to inflation if the money supply is expansive. The high level of national debt, not only in the Euro-crisis countries, and the strong increase in total assets of the European Central Bank, as a result of the unconventional monetary policy, caused fears on inflating national debt. The transmission from public debt to inflation through money supply and long-term interest rate will be shown in the paper. Based on these theoretical thoughts, the variables public debt, consumer price index, money supply m3 and long-term interest rate will be analysed within a vector error correction model estimated by Johansen approach. In the empirical part of the article, quarterly data for Germany from 1991 by 2010 are to beIn the paper, the interaction between public debt and inflation including mutual impulse response will be analysed. The European sovereign debt crisis brought once again the focus on the consequences of public debt in combination with an expansive monetary policy for the development of consumer prices. Public deficits can lead to inflation if the money supply is expansive. The high level of national debt, not only in the Euro-crisis countries, and the strong increase in total assets of the European Central Bank, as a result of the unconventional monetary policy, caused fears on inflating national debt. The transmission from public debt to inflation through money supply and long-term interest rate will be shown in the paper. Based on these theoretical thoughts, the variables public debt, consumer price index, money supply m3 and long-term interest rate will be analysed within a vector error correction model estimated by Johansen approach. In the empirical part of the article, quarterly data for Germany from 1991 by 2010 are to be examined.show moreshow less

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Metadaten
Author:Andreas NastanskyGND, Alexander Mehnert, Hans Gerhard StroheGND
URN:urn:nbn:de:kobv:517-opus-50246
Series (Serial Number):Statistische Diskussionsbeiträge (51)
Document Type:Monograph/Edited Volume
Language:English
Year of Completion:2014
Publishing Institution:Universität Potsdam
Release Date:2014/01/21
Tag:Beveridge-Nelson Decomposition; Inflation; Money Supply; Public Debt; Vector Error Correction Model
Organizational units:Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL Classification:C Mathematical and Quantitative Methods / C3 Multiple or Simultaneous Equation Models / C32 Time-Series Models; Dynamic Quantile Regressions (Updated!)
E Macroeconomics and Monetary Economics / E3 Prices, Business Fluctuations, and Cycles / E31 Price Level; Inflation; Deflation
E Macroeconomics and Monetary Economics / E5 Monetary Policy, Central Banking, and the Supply of Money and Credit / E51 Money Supply; Credit; Money Multipliers
H Public Economics / H6 National Budget, Deficit, and Debt / H63 Debt; Debt Management
Licence (German):License LogoKeine Nutzungslizenz vergeben - es gilt das deutsche Urheberrecht
Notes extern:RVK-Klassifikation: QH 200