IDEAS home Printed from https://ideas.repec.org/h/spr/sprchp/978-3-031-37755-6_6.html
   My bibliography  Save this book chapter

Government Debt and Fixed Capital Formation Nexus: Effects of the Interest Rate and Monetary Policy Credibility Channels

In: Fiscal Policy Shocks and Macroeconomic Growth in South Africa

Author

Listed:
  • Eliphas Ndou

    (University of South Africa)

  • Nombulelo Gumata

    (Eldoreigne X3)

Abstract

Does the interest rate channel impact the relationship between the positive government loan debt to GDP ratio shock and capital formation in South Africa? The results indicate that positive government debt shocks crowd out capital formation. The findings of the crowding-out effects are robust to different model specifications and different ordering of variables in the model. Furthermore, the results show that gross fixed capital formation declines more due to large positive government debt shocks than to small-sized government debt shocks. The counterfactual model results indicate that the interest rate tightening channel amplifies the decline in capital formation due to positive government debt shocks. This contrasts with the effects of the interest rate loosening channel which mitigates the decline in capital formation due to positive government debt shocks. In addition, the monetary policy credibility channel mitigates the crowding-out effect of capital formation by positive government debt shock. Thus, high monetary policy credibility dampens the decline in capital formation due to positive government loan debt shocks. This is because monetary policy credibility contains the inflation risk component of the yield curve and results in predictable short-term interest rate changes. The policy implication of these results is that the interest rate loosening and high monetary policy credibility channels play an important role in neutralising the crowding-out effects of high government debt shocks on capital formation.

Suggested Citation

  • Eliphas Ndou & Nombulelo Gumata, 2023. "Government Debt and Fixed Capital Formation Nexus: Effects of the Interest Rate and Monetary Policy Credibility Channels," Springer Books, in: Fiscal Policy Shocks and Macroeconomic Growth in South Africa, chapter 0, pages 77-91, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-37755-6_6
    DOI: 10.1007/978-3-031-37755-6_6
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:sprchp:978-3-031-37755-6_6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.