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Government Debt-Interest Rate Nexus in G7 Countries over a Long Horizon

Lena Malešević-Perović ()
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Lena Malešević-Perović: Faculty of Economics, University of Split, Croatia

Authors registered in the RePEc Author Service: Lena Malesevic Perovic ()

Panoeconomicus, 2016, vol. 63, issue 5, 603-625

Abstract: 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.

Keywords: Government debt; Interest rate; G7; Crowding-out (search for similar items in EconPapers)
JEL-codes: C23 E43 E62 H62 H63 (search for similar items in EconPapers)
Date: 2016
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