Fiscal Positions and Government Bond Yields in OECD Countries
DIANE Publishing, Apr 1, 2011 - 40 pages
Examines the impact of fiscal positions, both the level of debt and the fiscal balance, on long-term gov't. bond yields in the Org. for Econ. Cooperation and Development (OECD). In order to control for the endogenity of fiscal positions to the business cycle. the authors utilize forward projections of fiscal positions from the OECD's Economic Outlook. In a panel regression over the period from 1988 to 2007, they find a robust and significant effect of fiscal performance on long-term bond yields. The marginal effect of the projected deterioration of fiscal positions associated with the recent financial crisis is to add about 60 basis points to U.S. bond yields by 2015, with effects on other G7 bond yields generally being smaller. Illus. This is a print on demand report.
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19 cross-sections 2-year ahead forecasts 20 periods affect bond baseline regressions basis points Bold indicates signifance coefficient Bold indicates columns represent entire columns represent G7 cross-sectional fixed effects cross-sections and 20 deficits and debts dependent variable econometric effect of fiscal Engen and Hubbard Federal Reserve System fiscal balance fiscal deficits fiscal deterioration fiscal effects fiscal imbalances fiscal performance fiscal policy fiscal positions fiscal variables Full Panel G-7 G7 includes Canada GDP growth Germany government bond yields government debt Gross Debt impact of fiscal inflation expectations Interest rate variables Italy Japan Laubach Long-term IR(lag Net Debt OECD panel data panel dataset Panel G-7 Countries Panel regression percent level period and cross-sectional Primary Balance regression with unreported reported underneath coefficient represent entire sample represent G7 countries Rulke Second 4 columns Structural Balance t-statistic reported underneath two-year ahead projected underneath coefficient Bold United Kingdom Table unreported constant variables are 2-year variables are contemporaneous