The Impact of Debt Market Development on the Effect of Monetary and Financial Policies on Stimulating Private Sector Consumption: Testing the Ricardian equality principle based on the threshold effects approach
Quarterly Journal of Securities Exchange

Quarterly Journal of Securities Exchange

The Impact of Debt Market Development on the Effect of Monetary and Financial Policies on Stimulating Private Sector Consumption: Testing the Ricardian equality principle based on the threshold effects approach

Document Type : Original Article

Authors
Mahdi sadeqi shahdani 1
seyyed abbas mousavian 2
mohammad mahdi askari 3
majid karimirizi 4
1 Professor of Imam Sadegh University
2 Professor of the Institute of Islamic Culture and Thought.
3 Associate Professor of Imam Sadegh University.
4 PhD student in Economics, Imam Sadegh University
10.22034/jse.2020.11176
Abstract
The development of the government debt market has always been a challenge for policymakers and economic planners. Some countries consider the development of the government debt market to stimulate the real sector of the favorable and undesirable economy. But efficient monetary and monetary policy stimulate the behavior of the real sector of the economy, more than anything else, they need efficient tools that can be defined and organized in the context of the development of the government debt market. Given the importance of this issue, the present study examined the effects of debt market development threshold on the efficiency of monetary and fiscal policies in stimulating private sector consumption over 68 countries during the period 2018-2019. In this case, we have the following:
Experimental results from STR modeling show that the behavior of economic variables with regard to private sector consumption is structurally failing when government debt-to-GDP ratios reach above 70%. Thus, the consumption of the private sector takes on two behavioral regimes. In both behavioral regimes, the Ricardian equality theory is rejected, and the positive effect of government debt on private sector consumption in the high state debt regime is greater than the low government debt regime. The effect of monetary and fiscal policies on private sector consumption in two government debt regimes is also defined as a linear function of the ratio of government debt to GDP whose width and origin of this effect function in both regimes. Behavior is completely different.
 
Keywords
Threshold effects
government debt market
monetary and fiscal policy efficiency
Ricardian equivalent
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Quarterly Journal of Securities Exchange
Volume 13, Issue 50
Summer 2020
Pages 5-26