Paper title: The Effects of Fiscal and Macroeconomic Shocks on Public Debt Trajectories in the Euro Area
Authors: 
Olegs Tkacevs - Bank of Latvia
Karsten Staehr - Department of Economics and Finance, TalTech; Bank of Estonia

Abstract:

This paper examines the impact of fiscal and macroeconomic shocks on public debt trajectories in the euro area. Various shocks are identified using country-specific SVAR models, and the shocks are then used in local projections on panel data to generate impulse response functions. The analysis indicates that a positive GDP shock leads to persistent reduction in the debt-to-GDP ratio; a positive GDP deflator shock reduces the debt ratio but the effect is short-lived; and a positive interest rate shock produces a substantial and lasting increase in the debt ratio. A positive primary balance shock, reflecting discretionary fiscal consolidation, lowers the debt ratio considerably, but it does so with a lag of around one year, after which the effect persists. The negative effect on the debt ratio is however considerably more pronounced during economic booms than during slumps. 

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month both in online  and onsite format, unless announced otherwise. The seminar will last one hour, presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Questions about the seminar can be sent to the seminar coordinator Karsten Staehr: karsten.staehr@taltech.ee.