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Do Government Budget Deficits Raise Bond Yields? Evidence from Canada

Richard J. Cebula et al.

Applied Economics Quarterly2023https://doi.org/10.3790/aeq.2023.1467401article
ABDC B
Weight
0.26

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.

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https://doi.org/https://doi.org/10.3790/aeq.2023.1467401

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@article{richard2023,
  title        = {{Do Government Budget Deficits Raise Bond Yields? Evidence from Canada}},
  author       = {Richard J. Cebula et al.},
  journal      = {Applied Economics Quarterly},
  year         = {2023},
  doi          = {https://doi.org/https://doi.org/10.3790/aeq.2023.1467401},
}

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Do Government Budget Deficits Raise Bond Yields? Evidence from Canada

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Evidence weight

0.26

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.00 × 0.4 = 0.00
M · momentum0.20 × 0.15 = 0.03
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.