Monetary policy of central banks and its effect on private and public indebtedness

Alexandra Danišková

Master's thesis

Abstract:

This thesis investigates the relationship between central bank monetary policy – more specifically the central bank policy interest rate and indebtedness within the public and private sectors across different countries. Utilizing an Autoregressive Distributed Lag (ARDL) approach, this study provides a comparative analysis of the impact of policy rates on debt dynamics in the Czech Republic, Germany, and Greece. Moreover, the effect of the real GDP change was added as another explanatory variable due to the inherent impact to the debt/GDP ratio. The research findings differ across the countries but also across the public and private sector within the same countries. In general, the results support the inverse effect of the real GDP change on the debt/GDP ratio. The effect of the central bank policy interest rate is, on the other hand less significant and varies not only in the strength but also the sign of the coefficient.

Abstract:

This thesis investigates the relationship between central bank monetary policy – more specifically the central bank policy interest rate and indebtedness within the public and private sectors across different countries. Utilizing an Autoregressive Distributed Lag (ARDL) approach, this study provides a comparative analysis of the impact of policy rates on debt dynamics in the Czech Republic, Germany, and Greece. Moreover, the effect of the real GDP change was added as another explanatory variable due to the inherent impact to the debt/GDP ratio. The research findings differ across the countries but also across the public and private sector within the same countries. In general, the results support the inverse effect of the real GDP change on the debt/GDP ratio. The effect of the central bank policy interest rate is, on the other hand less significant and varies not only in the strength but also the sign of the coefficient.

Keywords

central bank policy interest rate, ARDL, debt/GDP

Keywords

ARDL, debt/GDP, central bank policy interest rate

Language used: English

Date on which the thesis was submitted / produced: 21. 5. 2024

Thesis defence

• Date of defence: 12. 6. 2024
• Supervisor: Karel Brůna
• Reader: Kateřina Šímová

Vysoká škola ekonomická v Praze

Master programme:
Finance and Accounting