engleski

Public debts, deficits and interest rates in CEECs: are there spatial spillovers?

In this paper we extend the literature on the relationship between public debts, deficits and government bond yields in the following directions: we examine a set of 11 Central and Eastern European countries during the period 2006- 2015 ; we apply a novel econometric technique that allows for spatial effects and we test forward- looking instead of current values of explanatory variables thus addressing endogeneity problem. We find that there is overall a highly significant positive effect of both public debt and deficit on long-term interest rates. This effect is found to be larger in CEECs than in developed countries. Moreover, deficits are found to exert a large and significant indirect effect, and these spillovers amount to more than 50 percent of the overall effect.

government debt ; government bond yield ; primary deficit ; CEECs ; spatial panel analysis ; spillover effects

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