The interest-rate sensitivity of the demand for sovereign debt. Evidence from OECD countries (1995-2011)

Giuseppe Grande, Sergio Masciantonio () and Andrea Tiseno ()
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Andrea Tiseno: Bank of Italy

No 988, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Public debt levels in advanced economies have increased dramatically over recent years and they could put considerable upward pressure on market yields. Using a novel identification approach based on financial accounts and focusing on panel regressions for 18 advanced economies over the period 1995�2011, this paper estimates the long-term slope of the demand function for government securities in a reduced-form setting. We find that public debt does matter: each percentage point increase in the public debt to GDP ratio raises 10-year rates by about 2 basis points. The potential drag on public debt sustainability caused by the feedback loop of public debt on higher interest rates should not therefore be overlooked.

Keywords: government debt; long-term interest rates; financial accounts (search for similar items in EconPapers)
JEL-codes: E43 G12 H63 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_988_14

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