Public Debt in Advanced Economies and its Spillover Effectson Long-Term Yields

Author/Editor:

Emre Alper ; Lorenzo Forni

Publication Date:

August 1, 2011

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Several models establish a positive association between public debt ratios and long-term real yields, but the empirical evidence is not always conclusive. We reconsider this issue, focusing in particular on possible spillover effects of large advanced economies' debt levels to other economies' borrowing yields, especially in emerging markets. We extend the existing literature by using real time expectations of fiscal and other macroeconomic variables for a large sample of advanced and emerging economies. We show that an increase in the public debt levels of large advanced economies - especially the United States - spills over to both emerging markets and other advanced economies' long-term real yields and that this effect is significant at the current levels of advanced economies' debt ratios.

Series:

Working Paper No. 2011/210

Subject:

Domestic debt Financial services Government debt management Long term interest rates Public debt Public financial management (PFM) Real interest rates

English

Publication Date:

August 1, 2011

ISBN/ISSN:

9781463902209/1018-5941

Stock No:

WPIEA2011210

Pages:

23

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