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What drives provincial-Canada yield spreads?

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Author Info

  • Laurence Booth
  • George Georgopoulos
  • Walid Hejazi
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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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    File URL: http://economics.ca/cgi/xms?jab=v40n3/CJEv40n3p1008.pdf
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    Bibliographic Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 40 (2007)
    Issue (Month): 3 (August)
    Pages: 1008-1032

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    Handle: RePEc:cje:issued:v:40:y:2007:i:3:p:1008-1032

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    Cited by:
    1. Bernoth, Kerstin & Hagen, Jürgen von & Schuknecht, Ludger, 2006. "Sovereign Risk Premiums in the European Government Bond Market," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 151, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Lars P. Feld & Alexander Kalb & Marc-Daniel Moessinger & Steffen Osterloh, 2013. "Sovereign Bond Market Reactions to Fiscal Rules and No-Bailout Clauses - The Swiss Experience," CESifo Working Paper Series 4195, CESifo Group Munich.
    3. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2009. "Government risk premiums in the bond market: EMU and Canada," European Journal of Political Economy, Elsevier, vol. 25(3), pages 371-384, September.
    4. Van Hecke, Annelore, 2013. "Vertical debt spillovers in EMU countries," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 468-492.
    5. Dhritidyuti Bose & Rajeev Jain & Lakshmanan L, 2011. "Determinants of Primary Yield Spreads of States in India: An Econometric Analysis," Working Papers id:4370, eSocialSciences.
    6. Charles Wyplosz, 2012. "Fiscal Rules: Theoretical Issues and Historical Experiences," NBER Working Papers 17884, National Bureau of Economic Research, Inc.

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