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Do Government Budget Deficits Raise Bond Yields? Evidence from Canada

  1. Journals
  2. Economics, Finance, Business & Management
  3. Applied Economics Quarterly
  4. Vol. 69, Issue 1
  5. pp. 1–10

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Cebula, R., Mixon Jr., F., Xu, J. Do Government Budget Deficits Raise Bond Yields? Evidence from Canada. Applied Economics Quarterly, 69(1), 1-10. https://doi.org/10.3790/aeq.2023.1467401
Cebula, Richard J.; Mixon Jr., Franklin G. and Xu, Jiayi "Do Government Budget Deficits Raise Bond Yields? Evidence from Canada" Applied Economics Quarterly 69.1, 2023, 1-10. https://doi.org/10.3790/aeq.2023.1467401
Cebula, Richard J./Mixon Jr., Franklin G./Xu, Jiayi (2023): Do Government Budget Deficits Raise Bond Yields? Evidence from Canada, in: Applied Economics Quarterly, vol. 69, iss. 1, 1-10, [online] https://doi.org/10.3790/aeq.2023.1467401
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Do Government Budget Deficits Raise Bond Yields? Evidence from Canada

Cebula, Richard J. | Mixon Jr., Franklin G. | Xu, Jiayi

Applied Economics Quarterly, Vol. 69(2023), Iss. 1 : pp. 1–10 | First published online: December 18, 2025

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/aeq.2023.1467401
Language
German
Pages
10
Keywords

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€ 24.00 (incl. local VAT if applicable)

Author Details

Department of Economics, University of Tennessee, Knoxville, Tennessee.

Corresponding author. Center for Economic Education, Columbus State University, 4225 University Avenue, Columbus, GA 31909.

Department of Finance, Siena College, Loudonville, NY.

References

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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.

Table of Contents

Section Title Page Action Price
Richard J. Cebula / Franklin G. Mixon Jr. / Jiayi Xu: Do Government Budget Deficits Raise Bond Yields? Evidence from Canada 1
Abstract 1
1. Introduction 1
2. General Framework and Baseline Model 3
3. Empirical Model, Data, and Results 5
4. Conclusion 8
References 8

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