Economic Consequences of the Cost of Government Borrowing in European Transition Economies

Abstract Given the need of transition economies to fund investments necessary for development partly through borrowing, this paper investigates empirically economic consequences government cost borrowing European during period 2003-2016. The investigation analyses impact sovereign costs, in turn, on interest rates loans businesses and households, growth investment consumption, and, ultimately, general activity. By utilizing a panel VAR technique our results indicate that consequent upon positive shock both Non-Financial Corporations (NFCs) households increases. We find price transmission from costs private sector is at play with respect not only but also macroeconomic activity large. Following an increase we observe substantial negative responses investment, household GDP growth. Also, while NFCs found negatively affect consumption unaffected by rates. These findings have valuable policy implications policymakers stakeholders economies. Specifically, suggest efforts reduce could economy lowering businesses, promoting ultimately boosting