The impact of increasing public debt on real interest rate in Egypt
L'impact de l'augmentation de la dette publique sur le taux d'intérêt réel en Égypte
Abstract: The paper aims to study the dynamic interaction between public debt and real interest rate, or real interest rate responsiveness to changes in domestic public debt; this could be by giving an answer to a debatable question, does the increase in government debt affect real interest rates in Egyptian economy, where government intervenes in interest rate determination? Using a set of Egyptian data (from 1982 to 2017), and a simple econometric model, the paper adds to empirical evidence that an increase in domestic government debt equivalent to $1 billion would likely increase the real interest rate by about 1 to 1.1 basis points. Some existing studies in HDCs estimate effects above this range. This reduction in interest rate effects of public debt could be according to the decrease in the efficiency of physical capital in Egypt. The value of this finding is that it helps policymakers to understand the mutual independence between interest rate and public debt. Keywords: Public debt, interest rate, marginal product of capital, Ricardian.
