scholarly journals Government debt-interest rate nexus in G7 countries over a long horizon

2016 ◽  
Vol 63 (5) ◽  
pp. 603-625
Author(s):  
Lena Malesevic-Perovic
Keyword(s):  
Interest Rates ◽  
Government Debt ◽  
Crowding Out ◽  
Government Bond ◽  
Bond Yields ◽  
G7 Countries ◽  
Percentage Point Increase ◽  
Point Increase ◽  
Government Deficit ◽  
Output Gaps

The goal of this paper is to investigate the influence of government fiscal positions on long-term interest rates in G7 countries during the period 1948-2012. Our results suggest that a one percentage point increase in the stock of government debt in GDP is associated with an increase in government bond yields of 2.27-6.28 basis points, while an increase in government deficit in GDP of one percentage point is associated with an increase in government bond yields of 3.15-14.3 basis points. In addition, our results indicate that under reasonable assumptions and in the presence of widening output gaps, the neoclassical growth model predicts a rather low degree of crowding-out (around 36 percent), while the narrowing of the output gap leads to a complete crowding-out.

Re-election will still be tough for Canada’s Liberals

2019 ◽  
Keyword(s):  
Interest Rates ◽  
Housing Market ◽  
Government Debt ◽  
Bank Of Canada ◽  
Federal Election ◽  
Content Type ◽  
Opinion Polling ◽  
Economic Difficulty ◽  
Government Deficit ◽  
Deficit Spending

Significance Canada’s next federal election must be held by October. Opinion polling is putting the Conservatives ahead. Impacts The Bank of Canada will likely keep interest rates steady for now. Wilson-Raybould and Philpott could move to other parties for the next election. Further economic difficulty and government deficit spending will increase government debt. The housing market will slow further but does not appear to be crashing. Tentative moves towards national pharmacare coverage will be talked up electorally but ultimately are unlikely to materialise.

scholarly journals The Impact of Government Debt Issuance on Short-Term interest rates in Indonesia

2009 ◽  
Vol 11 (3) ◽  
pp. 301
Author(s):  
Sri Adiningsih
Keyword(s):  
Fiscal Policy ◽  
Private Sector ◽  
Financial Markets ◽  
Interest Rates ◽  
Budget Deficit ◽  
Negative Impact ◽  
Government Debt ◽  
Crowding Out ◽  
Short Term ◽  
The Impact

This paper analyzes whether the expansionary fiscal policy funded by issuing debt instruments in financial markets will increase short-term interest rates. If  the expansionary fiscal policy increases interest rates, which decrease private spending especially investment, crowding out occurs. This is interesting because global economic crisis has encouraged many countries to run large budget deficits to stimulate the economy. Indonesia has also run budget deficit during this crisis and even in years before. The impact of such a policy can be significant because Indonesia’s debt market is still narrow and shallow. Therefore, its capability of absorbing the government debt instruments without influencing the private sector funding is limited. This study tests whether the crowding out occurs in Indonesia using a time series econometric model inspired by Cebula and Cuellar’s model. The Cointegration Regression and Error Correction Model (ECM) are used in this study. Monthly data from April 2000 to December 2008 are used for overnight real interbank call money interest rates, real net government bond issues in trading, real narrow money supply, real rate of one-month Certificate of Bank Indonesia, growth of Gross Domestic Product, and real net international capital flows. This empirical study shows that the crowding out problem occurred in Indonesia during the period. This indicates that financing budget deficit in Indonesia by issuing debt instruments in the financial markets has a negative impact on the private sector.

Long-Term Interest Rates: The Role of Expected Budget Deficits

1988 ◽  
Vol 16 (3) ◽  
pp. 341-356 ◽  
Author(s):  
Lloyd B. Thomas ◽  
Ali Abderrezak
Keyword(s):  
Interest Rates ◽  
Output Growth ◽  
Reduced Form ◽  
Government Bond ◽  
Budget Deficits ◽  
Bond Yields ◽  
Expected Inflation ◽  
Bond Yield ◽  
Deficit Reduction ◽  
Alternative Measures

A relatively simple loanable funds model is utilized to explain the 10-year government bond yield during 1970–86. In the reduced form equation, expected inflation, expected structural deficits as a percentage of GNP, output growth, and liquidity growth appear as exogenous variables. Using alternative measures of expected inflation and expected deficits, the regression results indicate a powerful effect of expected deficits on the 10-year government bond yield. The increase in expected deficits raised bond yields by some 180 basis points by early 1984, and the anticipation of deficit-reduction legislation accounts for about one-third of the decline in yields during 1985–86, according to the model. In alternative experiments, tests are conducted to see whether bond yields “Granger-cause” forthcoming deficits. Our findings are consistent with the view that agents are forward-looking and foresee the direction of major changes in structural deficits.

scholarly journals Government Borrowing and Crowding Out

2021 ◽  
Author(s):  
Yasin Kürşat Önder ◽  
Maria Alejandra Ruiz-Sanchez ◽  
Sara Restrepo-Tamayo ◽  
Mauricio Villamizar-Villegas
Keyword(s):  
Welfare Analysis ◽  
Quantitative Model ◽  
Crowding Out ◽  
Firm Investment ◽  
Percentage Point Increase ◽  
Point Increase ◽  
Banking Relationships ◽  
The Cost ◽  
Lending Behavior ◽  
The Impact

We investigate the impact of fiscal expansions on firm investment by exploiting firms that have multiple banking relationships. Further, we conduct a localized RDD approach and compare the lending behavior of banks that barely met and missed the criteria of being a primary dealer, as well as barely winners and losers at government auctions. Our results indicate that a 1 percentage point increase in banks’ bonds-to-assets ratio decreases loans by up to 0.4%, which leads to significant declines in firm investment, profits and wages. Our findings are grounded in a quantitative model with financial and real sectors with which we undertake a welfare analysis and compute the cost of government borrowing on the overall economy.

scholarly journals Comparative Analysis of the Determinants and Behaviour of Investment Demand between South Africa and Zimbabwe

2013 ◽  
Vol 5 (6) ◽  
pp. 385-397
Author(s):  
Sambulo Malumisa
Keyword(s):  
South Africa ◽  
Interest Rates ◽  
Private Investment ◽  
Government Debt ◽  
Annual Data ◽  
Crowding Out ◽  
Vector Autoregressive ◽  
Investment Demand ◽  
Short Run ◽  
Positive Effect

The study investigates the determinants of private investment in South Africa and Zimbabwe employing annual data over the 1980-2010 periods. The influence of gross domestic product (GDP), government debt, inflation, and interest rate policies are considered. Applied vector autoregressive and error correction models are used to estimate long- and short-run relationships among variables. The results suggest that GDP has a positive effect on private investment. Government debt has a crowding out effect on private investment, and inflation is shown to negatively affect investment. Increases in interest rates discourage private investment in South Africa

Policy risks will dog Europe's emerging markets

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Latin American ◽  
Emerging Market ◽  
Government Bond ◽  
Bond Yields ◽  
Content Type ◽  
Policy Regimes ◽  
Political Risks ◽  
European Economies

Subject Political and policy risks in Emerging Europe. Significance Although the currencies and government bond yields of Central European economies remain stable, the region's equity markets are coming under increasing strain, partly because of political risk. However, strong demand for Turkish local debt suggests there is still appetite for higher-yielding emerging market (EM) bonds. Impacts The recovery in oil prices is helping underpin favourable sentiment towards EMs despite persistent vulnerabilities and risks. Waning confidence in the efficacy of monetary policy will increase investors' sensitivity to political risks in EMs. This is particularly the case if these risks undermine the credibility of countries' policy regimes. Many Latin American economies have been forced to hike interest rates to counter a surge in inflation. By contrast, historically low inflation lets Central-Eastern Europe's central banks keep monetary policy ultra-loose.

Balkan banks will raise Greek contagion fears

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Banking Sector ◽  
Spillover Effects ◽  
Government Bond ◽  
Bond Yields ◽  
Content Type ◽  
The Us ◽  
South Eastern Europe ◽  
Bank Funding ◽  
Low Levels

Significance The loan let Greece make a scheduled payment to the ECB and settle arrears to the IMF. It is part of the agreement in principle with Greece's international lenders for a third package of financial assistance that has eased market fears about an imminent Greek exit from the euro-area ('Grexit'). Yet concerns about the solvency of the country's banking sector and Greece's membership of the single currency persist. In Emerging Europe, the spillover effects from a possible Grexit have diminished significantly since 2012, but the channels of contagion are strongest in the economies of South-Eastern Europe (SEE). Impacts The ECB's full-blown QE programme will help keep CEE government bond yields at extremely low levels across the region. The severe financial and economic crisis in many CEE states in 2008 has shown up the dangers of excessive reliance on parent bank funding. This is forcing local banks to rely more on domestic sources of financing. The biggest threat to sentiment towards Emerging Europe is another 'taper tantrum' when the US Fed raises interest rates later this year.

scholarly journals THE DYNAMICS OF GOVERNMENT BOND YIELDS IN THE EURO ZONE

2017 ◽  
Vol 12 (03) ◽  
pp. 1750011 ◽  
Author(s):  
TANWEER AKRAM ◽  
ANUPAM DAS
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Government Bond ◽  
Bond Yields ◽  
Short Term ◽  
Government Bonds ◽  
Euro Zone ◽  
Pooled Mean Group ◽  
Policy Measures

This paper investigates the determinants of nominal yields of government bonds in the euro zone. The pooled mean group (PMG) technique of cointegration is applied on both monthly and quarterly datasets to examine the major drivers of nominal yields of long-term government bonds in a set of 11 euro zone countries. Furthermore, the autoregressive distributive lag (ARDL) methods are used to address the same question for individual countries. The results show that short-term interest rates are the most important determinants of long-term government bonds’ nominal yields. These results support Keynes’s view that short-term interest rates and other monetary policy measures have a decisive influence on long-term interest rates on government bonds.

scholarly journals PENGARUH SUKU BUNGA, KURS RILL DAN PERTUMBUHAN EKONOMI TERHADAP YIELD OBLIGASI PEMERINTAH : LOWER MIDDLE INCOME COUNTRIES DI ASIA PASIFIK

2021 ◽  
Vol 3 (1) ◽  
pp. 15
Author(s):  
Lara Yuli Rusdy ◽  
Sri Ulfa Sentosa
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rates ◽  
Real Exchange Rates ◽  
Asia Pacific ◽  
Government Bond ◽  
Bond Yields ◽  
Middle Income ◽  
Middle Income Countries ◽  
Policy Interest

This study explains the influence of monetary policy interest rates, real exchange rates and economic growth on government bond yields on Lower Middle Income Countries in Asia Pacific. This study combines cross section data in 5 countries with time series from 2007-2018, with the Panel Regression method and the Random Effect model selection test. The results show that: (1) Monetary Policy Interest Rates has a positive and significant effect on government bond yields on Lower Middle Income Countries in Asia Pacific, (2) The real exchange rate have a negative and significant effect on government bond yields for Lower Middle Income Countries in Asia Pacific. , (3) Economic growth has a negative and significant effect on government bond yields on Lower Middle Income Countries in Asia Pacific.

scholarly journals Inflation, Exchange Rates and Interest Rates in Ghana: an Autoregressive Distributed Lag Model

2015 ◽  
Vol 63 (3) ◽  
pp. 969-977 ◽  
Author(s):  
Dennis Nchor ◽  
Samuel Antwi Darkwah
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Nominal Interest Rate ◽  
Fisher Effect ◽  
Percentage Point Increase ◽  
Distributed Lag ◽  
Distributed Lag Model ◽  
Autoregressive Distributed Lag ◽  
Point Increase ◽  
Lag Model

This paper investigates the impact of exchange rate movement and the nominal interest rate on inflation in Ghana. It also looks at the presence of the Fisher Effect and the International Fisher Effect scenarios. It makes use of an autoregressive distributed lag model and an unrestricted error correction model. Ordinary Least Squares regression methods were also employed to determine the presence of the Fischer Effect and the International Fisher Effect. The results from the study show that in the short run a percentage point increase in the level of depreciation of the Ghana cedi leads to an increase in the rate of inflation by 0.20%. A percentage point increase in the level of nominal interest rates however results in a decrease in inflation by 0.98%. Inflation increases by 1.33% for every percentage point increase in the nominal interest rate in the long run. An increase in inflation on the other hand increases the nominal interest rate by 0.51% which demonstrates the partial Fisher effect. A 1% increase in the interest rate differential leads to a depreciation of the Ghana cedi by approximately 1% which indicates the full International Fisher effect.

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