This study analyzes the effect of the two Debt Financing policies: Monetary and Bond Issuing, on the Dynamics Development. Economic variables, like GDP growth, interest rate and inflation are discussed, as the key determinants in the Debt Dynamics process development.
The proposition of countries EMU members having higher Debt Dynamics level is suggested. This proposition is based on the fact that EMU member countries cannot use their Monetary policy to the extend it is needed in hard times. Due to this lack of choice EMU members can only intensively use Bond financing.
The empirical findings of the paper indicate that the difference in Debt Dynamics between the euro using and non-using countries exists. The difference indicates that the EMU member countries tend to have higher Debt Dynamics than the rest of the EU countries.
These findings are discussed from different sides, concluding that Monetary Policy does mat-ter in certain cases. At the same time a quite high level of Debt Dynamics in both groups is discovered, which is also an interesting issue to address.
Source: Jönköping University
Author: Bilinskaya, Yuliya