Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries

Ardagna, Silvia; Caselli, Francesco; Lane, Timothy

doi:10.3386/w10788

Cited by 197 publications

(226 citation statements)

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“…Our final check on our results is to address any potential endogeneity between the spreads and the financial variables. To do this we follow a procedure used by Ardagna, Caselli, and Lane (2004) in which we estimate our model using one‐period lags of the independent variables 18 . The GLS results are reported in Table 6.…”

Section: Resultsmentioning

confidence: 99%

“…Similarly, Booth (1995) estimates a 0.26% increase, and using a VECM approach Gauthier, Tessier, and Traclet (2004) estimate an even stronger result where a 0.2% increase in the deficit increases nominal long‐term interest rates by 0.40%. Ardagna, Caselli, and Lane (2004) most recently used a panel of 12 OECD countries and estimated that a 1.0% increase in the debt to GDP ratio led to a contemporaneous increase in long‐term interest rates of 10 basis points, increasing to 150 basis points after ten years.…”

Section: Factors Affecting the Yield Spreadmentioning

confidence: 99%

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What drives provincial‐Canada yield spreads?

Booth

Georgopoulos

Hejazi

2007

Canadian J of Economics

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Abstract. Although recent research has led to a deeper understanding of the factors determining yields on long‐term Canada bonds, there has been little corresponding work on provincial bonds. By using a carefully constructed new data set, we establish two important results. First, provincial fiscal positions (debt and deficits) are an important factor in determining yield spreads between provincial and Canada bonds. Second, we show that provincial bonds are a substitute for corporate debt, in that during recessionary ‘flights to quality’ their yields react like those on corporate bonds.

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Section: Resultsmentioning

confidence: 99%

Section: Factors Affecting the Yield Spreadmentioning

confidence: 99%

What drives provincial‐Canada yield spreads?

Booth

Georgopoulos

Hejazi

2007

Canadian J of Economics

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“…14 Estimated using regression results in Tokuoka (2010), which report that a decline in corporate or household financial net worth of 1 percent of GDP would raise 10-year JGB yields by 1-2 basis points. 15 There is some empirical evidence consistent with the view that the impact of a rise in debt on yields is nonlinear and becomes significant once the debt exceeds a certain threshold (e.g., Faini, 2006;Ardagna, Caselli, and Lane, 2004). response to higher interest rate risk.…”

Section: Market Volatilitymentioning

confidence: 92%

Assessing the Risks to the Japanese Government Bond (JGB) Market

Lam

Tokuoka²

2011

IMF Working Papers

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Despite the rise in public debt, Japanese Government Bond (JGB) yields have remained low and stable, supported by steady inflows from the household and corporate sectors, high domestic ownership of JGBs, and safe-haven flows from heightened sovereign risks in Europe. Over time, however, the market's capacity to absorb new debt will likely shrink as population ages and risk appetite recovers. In the short term, a decline in fund supply from the corporate sector, where financial surpluses are abnormally high, and spillovers from global financial distress could push up JGB yields. Fiscal reforms to reduce public debt more quickly and lengthen the maturity of government bonds will help limit these risks. JEL Classification Numbers: E62

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“…2. Another strand of literature has focused on international evidence on the effects of deficits and debt on interest rates; see, for example, Ardagna, Caselli, and Lane (2004) and Faini (2006). Because of the limited (if any) availability of term structure estimates and of fiscal projections for countries other than the U.S., these studies are confined to the relationship between current long-term interest rates and current fiscal conditions.…”

Section: Introductionmentioning

confidence: 99%

New Evidence on the Interest Rate Effects of Budget Deficits and Debt

Laubach

2009

Journal of the European Economic Association

479

219

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Estimating the effects of government debt and deficits on Treasury yields is complicated by the need to isolate the effects of fiscal policy from other influences. To abstract from the effects of the business cycle, and associated monetary policy actions, on debt, deficits, and interest rates, this paper studies the relationship between long-horizon expected government debt and deficits, measured by CBO and OMB projections, and expected future long-term interest rates. The estimated effects of government debt and deficits on interest rates are statistically and economically significant: a one percentage point increase in the projected deficit-to-GDP ratio is estimated to raise long-term interest rates by roughly 25 basis points. Under plausible assumptions these estimates are shown to be consistent with predictions of the neoclassical growth model. JEL classification: E6, H6.

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Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries

Abstract: an anonymous referee, and to participants to the seminar at the European Central Bank Fiscal Policy Division for useful discussions and suggestions. The views expressed herein are those of the author(s) and not necessarily those of the National Bureau of Economic Research.

Cited by 197 publications

References 5 publications

What drives provincial‐Canada yield spreads?

What drives provincial‐Canada yield spreads?

Assessing the Risks to the Japanese Government Bond (JGB) Market

New Evidence on the Interest Rate Effects of Budget Deficits and Debt

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