Time-varying Effects of Public Debt on the Financial and Banking Development in the Central and Eastern Europe

Janda, Karel and Kravtsov, Oleg (2017): Time-varying Effects of Public Debt on the Financial and Banking Development in the Central and Eastern Europe.

Abstract

In this paper we investigate the time varying effects of domestic public debts on the financial development, private credit and banking performance in the countries of the Central Eastern Europe, Balkan and Baltics region. By analyzing the empirical relationships among indicators and ratios of financial development and banking performance, we test their time-varying responses to changes in public debt through the described transmission channels. The econometric results suggest that the most significant determinant of private debt is the growing public debt over the short-midterm horizon. This might imply the crowding-out effect of public debt on private credit in the region. The growth of public debt positively impacts the banking sector efficiency only over the short-term period, while we observe only minor time effects in responses to changes in public debt on the financial stability indicators.

• Item Type: MPRA Paper
• Language: English
• Keywords: sovereign debt, private credit, financial development, Central Eastern Europe
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P24 - National Income, Product, and Expenditure ; Money ; Inflation; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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