What the study found
High public debt and lax monetary policy appear to be the main sources of spillovers to bank lending, helping sustain the sovereign-bank doom loop. The study also reports that inflation acts as a financial stabilizer and that the debt ratio feeds inflation.
Why the authors say this matters
The authors conclude that policymakers should focus on restraining public debt and slowing expansionary central bank practices to improve bank stability and reduce inflation. The study suggests these steps could weaken the vicious circle between sovereign debt and banks.
What the researchers tested
The researchers examined the link between sovereign debt burden and bank lending capacity using quarterly data since 1966 on the debt-to-GDP ratio, bank lending, inflation, and M3, which is a broad measure of money supply. They used the Quantile-VAR framework under different market conditions.
What worked and what didn't
The findings reveal that a high debt ratio together with loose monetary action is associated with spillovers on bank lending and the continuation of the doom loop. Inflation is reported to increase the resilience of the system to shocks from excess debt ratio or liquidity injections. The study also finds that the debt ratio feeds inflation.
What to keep in mind
The abstract does not describe specific limitations, so none can be listed from the available summary. The findings are reported for the data and framework used in this study.
Key points
- High public debt and lax monetary policy are identified as the main sources of spillovers to bank lending.
- Inflation is described as a financial stabilizer that increases resilience to shocks from excess debt or liquidity injections.
- The debt ratio is reported to feed inflation.
- The study used quarterly data since 1966 on debt-to-GDP, bank lending, inflation, and M3.
- The authors conclude that restraining public debt and slowing expansionary central bank practices may improve bank stability and reduce inflation.
Disclosure
- Research title:
- Inflation weakens the sovereign-bank doom loop
- Authors:
- Nikolaos A. Kyriazis
- Institutions:
- University of Thessaly
- Publication date:
- 2026-02-01
- OpenAlex record:
- View
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