Czeczeli Vivien

The sustainability of public debt in a low interest rate environment

The starting point of the study is the era of persistently low interest rates following the 2008 crisis, which, including the Covid-19 crisis, was characterised by a negative interest rate-growth differential (r-g<0). In addition to a detailed inventory of the favourable opportunities provided by the period, the study also draws attention to possible risks arising from them. Not only the negative consequences caused by the reversal of interest rates, but also the danger of weakening fiscal discipline, the problem of interest rate endogeneity, and trust also play a central role, among many other factors. The effects from the perspective of monetary policy are reviewed in detail. In the last section, within the framework of debt decomposition studies, the main changes that can be observed in the dynamics of debt among European Union countries after the Covid-19 crisis are revealed. While the main drivers of the increase in debt ratios in 2020 were weak growth rates and increased primary deficits, the improvement in debt ratios in the following year can also be traced back primarily to growth effects, in addition to the failure to reduce nominal debt stocks.

LXX. évf., 2023. December (1361 - 1388. O.), DOI:10.18414/KSZ.2023.12.1361, Study

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