 How Important are Debt and Growth Expectations for Interest Rates?Sohrab Rafiq No 2015/094, IMF Working Papers from International Monetary Fund Abstract: This paper uses a dataset on private-sector risk aversion as well as expectations of long-run growth and debt to explain trends in implied forward rates on government bonds in the G-7 countries. The results show, consistent with the literature, that a one-percent rise in the long-run projected debt-to-GDP ratio causes an increase in bond yields of a relatively modest 1-to-6 basis points. Shocks to growth expectations and risk aversion have been comparatively more successful in explaining the behavior of long-term rates. The findings imply that growth policies rather than long-run projections of fiscal outcomes may be more important in helping influence long-term borrowing costs. Keywords: WP; debt expectation; public debt; economic growth; expectations; time-variation; growth expectation; expectations-interest rate model; interest rate movement; expectation relationship; debt expectation shock; Private debt; Long term interest rates; Yield curve; Global financial crisis of 2008-2009; Global (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2015/094 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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