The Role of Economic and Policy Uncertainty on the Effects of Widening Budget Deficits on Yields and the Credit Default Swap Spreads

Eliphas Ndou and Nombulelo Gumata
Additional contact information
Nombulelo Gumata: Eldoreigne X3

Chapter Chapter 19 in Fiscal Policy Shocks and Macroeconomic Growth in South Africa, 2023, pp 233-241 from Springer

Abstract: Abstract What are the effects of economic and policy uncertainty on government bond yields and the credit default swap spreads? Furthermore, does economic and policy uncertainty propagate the effects of widening budget deficits on ten-year yields and the credit default swap spreads? We find that positive shocks to the global economic and policy uncertainty (GEPU) index are transmitted into the South African economic and policy uncertainty (SAEPU) index, but a large share of the variation in the SAEPU is due to domestic factors. Furthermore, the five-year credit default swap (CDS) spreads and the ten-year government bond yields increase due to positive shocks to the SAEPU index. The counterfactual results show that the SAEPU channel amplifies the impact of the positive shocks on the budget deficit on the five-year CDS spreads and the ten-year government bond yields. In the absence of the SAEPU channel, the five-year CDS spreads and the ten-year government bond yields increase less due to the positive shocks on the budget deficit. The results imply that the widening budget deficits and heightened domestic uncertainty amplify the increase in the five-year CDS spreads and the ten-year government bond yields. It is therefore important to reduce domestic economic and policy uncertainty.

Date: 2023
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-37755-6_19

Ordering information: This item can be ordered from
http://www.springer.com/9783031377556

DOI: 10.1007/978-3-031-37755-6_19

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().