engleski

Government debt-interest rate nexus in G7 countries over a long horizon

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, 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.

government debt; interest rate; G7; crowding-out

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