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How Does Public Debt affect the Indian Macroeconomy? A Structural VAR Approach

Author

Listed:
  • Mohanty, Ranjan Kumar

    (National Institute of Public Finance and Policy)

  • Panda, Sidheswar

    (IIT, Indore)

Abstract

This study investigates the macroeconomic effects of public debt in India using a Struc-tural Vector Autoregression (SVAR) framework for the period from 1980 to 2017. The objective of this study is to examine the impact of several types of public debt on economic growth, investment, interest rate and inflation in India. The results of the Impulse re-sponse functions show that public debt has an adverse impact on economic growth, a pos-itive impact on long-term interest rate and a mixed response (both negative and positive) on investment and inflation in India. It is also found that the domestic debt has a more adverse impact on the economy than external debt in India. The estimated variance de-composition analysis shows that much of the variations among selected macro variables are explained by public debt and growth in India. The study suggests that public debt, especially the domestic debt should be controlled and used in a more productive manner in order to have a favourable impact on the economy.

Suggested Citation

  • Mohanty, Ranjan Kumar & Panda, Sidheswar, 2019. "How Does Public Debt affect the Indian Macroeconomy? A Structural VAR Approach," Working Papers 19/250, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:19/250
    Note: Working Paper 250, 2019
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    References listed on IDEAS

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    3. M. R. Anantha Ramu, 2021. "Public debt sustainability in sub-national level: a case of Karnataka," Indian Economic Review, Springer, vol. 56(2), pages 463-485, December.

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    More about this item

    Keywords

    Public Debt ; Internal Debt ; External Debt ; Economic Growth ; Structural VAR Approach ; India.;
    All these keywords.

    JEL classification:

    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General

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