Public debt dynamics in emerging markets: The case of Malaysia
List of Authors
  • Shariff Umar Shariff Abd. Kadir , Wong Hock Tsen

Keyword
  • Public debt, Fiscal policy, Malaysia

Abstract
  • This paper aims to investigate the impact of macroeconomic shocks on public debt dynamics in Malaysia. Time-series macroeconomic data spanning from 1980Q1-2020Q3 used in this study. The dynamic relationships are examined through impulse response functions (IRFs). The SVAR modelling approach is employed as it can capture the key characteristics of a small open economy. The results demonstrate that after a budget surplus shock, the government debt ratio falls, indicating a Ricardian regime. Domestic inflation triggered the government debt ratio to decline. Similarly, a reduction in the debt ratio as a result of a domestic output shock. The response of government debt to trade openness follows a similar pattern. In contrast, interest rate shock elevated government debt.

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