The Action Mechanism Between Government Debt and Financial Market In China: Analysis of China's Twenty Year History Data Combined With DAG and SVAR

Abstract

This paper uses the sample data of financial market, economic prosperity and government debt related indicators from 1997 to 2017 in China, and uses DAG and SVAR models to study the linkage mechanism among macroeconomic variables. The results show that there is a causal relationship between financial market, economic prosperity and government debt, and the former two are the transmitter of volatility factors, the latter is the receiver. In the long run, the impact of global economic and capital market volatility on China’s government debt risk is significantly higher than the real estate industry and price level and other domestic factors. Active fiscal policy will make the risk of government debt show a rising trend, it is worth noting that the development of financial markets and economic prosperity can reduce the impact of fiscal policy on the economy, thereby alleviating the risk of government debt.