IDEAS home Printed from https://ideas.repec.org/a/dah/aeqaeq/v69_y2023_i1_q1_p1-10.html
   My bibliography  Save this article

Do Government Budget Deficits Raise Bond Yields? Evidence from Canada

Author

Listed:
  • Richard J. Cebula
  • Franklin G. Mixon Jr.
  • Jiayi Xu

Abstract

This study applies quarterly data from 2013 through 2022 to a loanable funds framework to determine whether there is recent evidence that higher deficits and debt (both as a percentage of GDP) elevate the real yield on 10-year Canadian Treasury bonds. The study period is unique in that includes several quarters during which the COVID-19 pandemic was hampering the Canadian economy. Issues caused by the pandemic led the Canadian federal government to boost its spending by 70 % through $100 billion spending packages like the Canada Emergency Wage Subsidy and the Canada Emergency Response Benefit. Results from an autoregressive two-stage least squares regression suggest that larger Canadian federal government budget deficits and a higher debt-to-GDP ratio both elevated the real yield on 10-year Canadian government bonds. Other results indicate that the COVID-19 pandemic had its own positive impact on the real yield, potentially adding to any crowding out problems associated with higher real interest rates in Canada. Trans-Abstract: Do Government Budget Deficits Raise Bond Yields? Evidence from Canada This study applies quarterly data from 2013 through 2022 to a loanable funds framework to determine whether there is recent evidence that higher deficits and debt (both as a percentage of GDP) elevate the real yield on 10-year Canadian Treasury bonds. The study period is unique in that includes several quarters during which the COVID-19 pandemic was hampering the Canadian economy. Issues caused by the pandemic led the Canadian federal government to boost its spending by 70 % through $100 billion spending packages like the Canada Emergency Wage Subsidy and the Canada Emergency Response Benefit. Results from an autoregressive two-stage least squares regression suggest that larger Canadian federal government budget deficits and a higher debt-to-GDP ratio both elevated the real yield on 10-year Canadian government bonds. Other results indicate that the COVID-19 pandemic had its own positive impact on the real yield, potentially adding to any crowding out problems associated with higher real interest rates in Canada.

Suggested Citation

  • Richard J. Cebula & Franklin G. Mixon Jr. & Jiayi Xu, 2023. "Do Government Budget Deficits Raise Bond Yields? Evidence from Canada," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 69(1), pages 1-10.
    • Handle: RePEc:dah:aeqaeq:v69_y2023_i1_q1_p1-10
    DOI: 10.3790/aeq.69.1.1
    as

    Download full text from publisher

    File URL: https://doi.org/10.3790/aeq.69.1.1
    Download Restriction: Access to full text is restricted to subscribers (2008 onwards); Pay-per-view access from https://elibrary.duncker-humblot.com/journals/aeq (2008 onwards) and http://www.genios.de (2008 onwards)
    File URL: https://libkey.io/10.3790/aeq.69.1.1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dah:aeqaeq:v69_y2023_i1_q1_p1-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: E-Publishing-Team (email available below). General contact details of provider: https://www.duncker-humblot.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.