Stock-Flow Adjustments and Interest Rates

Abstract

We assess the effects of stock-flow adjustments (SFA) on short and long-term interest rates for 14 European countries between 1970 and 2015, in panel and SUR analysis. We conclude that an increase in SFA reduces long- and short-term interest rates, with higher reductions for short-term rates. Furthermore, the decreasing effects of an increment in the stock-flow have reduced since the 2008-2009 financial crisis. As expected, there is also an upward push on both interest rates from a rise in the debt ratio.

Keywords: Stock-flow adjustment; Debt; Interest rates; SUR; Panel

JEL Classification: C33, E43, H63, H83