Abstract
This paper aims to test the effect of crowding out on one of the developing countries, namely Indonesia. Using monthly data from January 2008 to June 2023, VECM's estimates show that the growth of government debt through its securities is negatively and significantly related to the growth of banking loans, both in the short and long term. This shows that there has been a crowding out effect in the process of withdrawing government debt. Meanwhile, the results of the Markov-switching estimate show that credit growth has a positive and significant impact on economic growth, both in normal and turbulent conditions. The growth of government debt is only positive and significant in turbulence periods, but not significant in normal times. These findings show that the government's debt policy has been at risk to the banking system and the economy.
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