Interrelation between public debt and interest rate level

Additional public debt above the two percent of GDP mark in the amount of one percent has been shown to increase interest rates by an additional fourteen basis points on average. – This empirical value increases in the case of – weak government institutions, – widespread uncertainty in the financial market as measured by the volatility of stock prices, – high inflation expectations, and – unfavorable demographic developments. – On the other hand, the rise in interest rates is lower if – the savings rate is very high, – companies finance themselves primarily through bank loans and less via the capital market, or – there are high capital inflows from abroad. – See government debt, effects.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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