Download or read book How Important are Debt and Growth Expectations for Interest Rates? written by Mr.Sohrab Rafiq and published by International Monetary Fund. This book was released on 2015-05-01 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a dataset on private-sector risk aversion as well as expectations of long-run growth and debt to explain trends in implied forward rates on government bonds in the G-7 countries. The results show, consistent with the literature, that a one-percent rise in the long-run projected debt-to-GDP ratio causes an increase in bond yields of a relatively modest 1-to-6 basis points. Shocks to growth expectations and risk aversion have been comparatively more successful in explaining the behavior of long-term rates. The findings imply that growth policies rather than long-run projections of fiscal outcomes may be more important in helping influence long-term borrowing costs.