It is commonly held that excessive domestic debt reduces private sector credit, raise bank lending rates, and shrink output as the Government competes with the private sector for private savings. Using multivariate vector autoregression approach and annual time series data spanning 1981-2016, this paper analysed the dynamic interactions and impacts of domestic debts on private sector credit, prime lending rate, and real output in Nigeria. The stability and higher-order dynamics of the VAR model were also examined. Our results provide evidence that Government domestic debt exerted statistically insignificant positive impacts on both private sector credit and prime lending rate, and a statistically significant negative impact on real output in Nigeria during the period covered by the study. Policy implications and recommendations have been proffered.

domestic debt, private sector credit, prime lending rate, real output, vector autoregressive model, granger causality