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A Keynesian analysis of Canadian government securities yields

Author

Listed:
  • Anupam Das

    (Mount Royal University)

  • Tanweer Akram

    (General Motors)

Abstract

Keynes argued that the short-term interest rate is the main driver of the long-term interest rate on government bonds. This paper empirically models the relationship between the short-term interest rate and long-term government securities yields in Canada, after controlling for other important financial variables. The statistical analysis uses high-frequency daily data from 1990 to 2018 to examine the behavioral dynamics of the long-term interest rate. The empirical results show that the actions of the Bank of Canada are key drivers of Canadian government securities yields in the long run, which supports the Keynesian perspective. There is a positive association between long-term bond yields and the Canadian federal governmentÕs net debt to GDP ratio, but the effect is fairly modest. An important implication of these findings is that the Bank of CanadaÕs actions can have a decisive effect on the long-term interest rate over the long horizon.

Suggested Citation

  • Anupam Das & Tanweer Akram, 2020. "A Keynesian analysis of Canadian government securities yields," PSL Quarterly Review, Economia civile, vol. 73(294), pages 241-260.
    • Handle: RePEc:psl:pslqrr:2020:33
    as

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    File URL: https://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/17121/16370
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    References listed on IDEAS

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    More about this item

    Keywords

    Canadian government bond yields; long-term interest rate; short-term interest rate.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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