The crowding out effect of public (internal) debt on private sector credit

This paper, using monthly data between 1998 (December) -2019 (May) through the application of the Autoregressive Lag Model (ARDL) through two channels (price and quantity) using three equations where two are to represent the quantity channel and one to represent the price channel accordingly to theory, aimed to address the existence of an inverse relationship between government internal debt and private sector credit.

In conclusion, we identified that an increase in government internal debt (by increasing lending by central bank and commercial banks to the government) has no negative effect on short and long term credit to the private sector through the price channel and the quantity channel when we maintain constant the lending rate, it shows a long-term crowding in effect.

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