Journal Issue
Share
Article

Japan

Author(s):
International Monetary Fund
Published Date:
July 2009
Share
  • ShareShare
Show Summary Details

I. The Outlook for Financing Japan’s Public Debt1

Summary

In Japan, government bond yields have shown little sensitivity to changes in the debt stock or fiscal deficits over the past ten years. Despite net public debt increasing by 40 percent of GDP, 10-year JGB yields have remained below 2.0 percent. Possible factors include: Japan’s large and growing pool of household savings, stable institutional investors, and a strong home bias. The large financial surpluses of the corporate sector in recent years may also have played a supporting role in providing funds through the banking system.

However, going forward, the market’s capacity to absorb debt is likely to diminish as population aging reduces savings inflows and reforms improve financial intermediation (e.g., Japan Post Bank). This could in turn strengthen the link between JGB yields and the stock of public debt. In the near term, sound public debt management can help preserve market stability, but over a longer-horizon, fiscal consolidation will become critical for the smooth financing of government operations.

A. Introduction

1. Japan faces a very difficult fiscal situation. After several years of improvement, fiscal deficits have widened sharply, reflecting both discretionary measures and automatic stabilizers in the slowdown. To finance the higher deficit, the government is expected to increase significantly JGB issuances in the coming year. With the general government deficit projected to reach 10 percent of GDP in 2009, public debt will exceed 100 percent of GDP in net terms (215 percent of GDP in gross terms)—one of the highest among advanced economies.

2. Despite the rapid increase in the supply of JGBs, the market so far has had little difficulty in absorbing the new debt. Net public debt has increased by about 40 percent of GDP (75 percent in gross terms) over the past ten years, while rollover of JGBs and financing bills amount to 40 percent of GDP annually.2 Despite this, government bond yields have been remained below 2 percent. Can these benign conditions be expected to continue in the face of even-larger increases in public debt? In this context, this chapter examines the challenges ahead facing Japan’s public debt finances, focusing on JGBs, which make up most of public debt, and discusses possible ways of maintaining market stability.

B. Outlook for Absorption Capacity of the JGB Market

3. Japan’s medium-term fiscal position is precarious. Under the authorities’ current policies (no consumption tax increase is assumed), net public debt is projected to continue rising, exceeding 160 percent of GDP by 2020 (baseline scenario). Under an alternative scenario when nominal interest rate is higher than in the baseline, net public debt would be even higher.3

Net Public Debt 1/

(In percent of GDP)

Source: MoF, CaO and staff estimations.

1/ Data are from the latest WEO submission through 2014. Projections are based on the assumption that the authorities will maintain current policies over the medium-term (no consumption tax increase is assumed).

2/ Interest rate/growth differential will gradually converge to the medium-term potential (staff’s estimate).

3/ Interest rate/growth differential will gradually converge to the alternative (authorities’) medium-term assumption.

Table I.1.Medium-term Assumptions on Interest Rate and Growth
BaselineAlternative 1/
Nominal interest rate on public debt2.94.1
Real GDP growth1.21.1
Inflation rate1.01.7

Authorities’ baseline assumptions for FY2018 as of January 2009. Nominal interest rate of 4.1 percent on public debt is the assumption for nominal long-term interest rate.

Authorities’ baseline assumptions for FY2018 as of January 2009. Nominal interest rate of 4.1 percent on public debt is the assumption for nominal long-term interest rate.

4. Standard theory suggests that either the fiscal deficit or the stock of debt should have a positive relation with the government bond yields. A textbook IS-LM framework predicts that deficits which finance expansionary fiscal policy raise interest rates. On the other hand, standard neoclassical growth theory argues that ultimately the stock of debt matters—in equilibrium, the real interest rate should equal the marginal productivity of capital, and thus what matters is the size of crowding-out of private capital by public debt.

5. In recent years, JGB yields have not been sensitive to changes in the debt stock or fiscal deficits. Prior to 2000, the 10-year JGB yields had declined steadily to 2 percent. Since 2000, 10-year JGB yields have remained fairly stable, despite the accumulation of debt and large fiscal deficits. More recently, the yields have picked up slightly since the beginning of this year (Figure I.1), but still remain low by historical standard.

Figure I.1.JGB Market Conditions

Source: Bloomberg.

10-year JGB Yield and Net Public Debt

Source: Cabinet office and IMF WEO data base.

6. This chapter contains an empirical attempt to determine whether JGBs are historically less sensitive to fiscal variables than other sovereign bonds (U.S., U.K., France, and Germany). The purpose is not to pin down the impact of the fiscal deficits or the stock of debt on the yields, but rather to obtain some information to help interpret key differences in Japan’s bond market compared with others. The outline of the baseline regressions and key findings are as follows:4

Outline of the baseline regressions

  • The dependent variable is the 10-year government bond yield (in percent) or its spread with the short-term interest rate (3-month deposit rate). The main explanatory variable is either the general government primary deficit (in percent of GDP) or general government debt (in percent of GDP) at the end of the previous year (the debt is measured both in net and gross terms). The primary deficit is used instead of the overall deficit as an explanatory variable, since the overall deficit includes interest payment, creating an endogeneity problem. The general government primary deficit is instrumented by its own lag to avoid (or at a minimum to reduce) the effects of the current business cycle.5 Standard controls (short-term interest rate, inflation, and real GDP growth) are included in the regressions. The sample period is 1971–2008 for Japan and the U.S. and somewhat shorter for other countries due to limited data availability.

Estimated Equations:6

(i) 10-year bond yield = β0 + β1 general government primary deficit + control variables

(ii) spread = β0 + β1 general government primary deficit + control variables

(iii) 10-year bond yield = β0 + β1 general government net (or gross) debt + control variables

Summary results

  • Japan. When the fiscal variable (independent variable) is the primary balance, the coefficient is relatively small (at most 0.1) and statistically insignificant. When the net or gross debt is included as an explanatory variable, the coefficient turns negative and significant.7 The results are generally coherent across alternative specifications. The estimates do not change much, even if the U.S. 10-year bond yield or its spread with the U.S. short-term interest rate—as a proxy for international liquidity conditions—is included as an explanatory variable.8 Similarly, excluding government debt held by the central bank from the net or gross debt (dependent variable) does not affect the results.9 Finally, restricting the sample to the pre-deflation period (before 1995) gives a relatively large coefficient (0.2) with a high t-statistic (3.4) when the 10-year bond yield is regressed on the primary balance, but in other specifications (with the restricted sample) the results are similar to those earlier.

  • Other countries. For other countries, however, positive coefficients on the primary deficit are reported, and for the U.S. and U.K. they are statistically significant in most cases. These statistically significant coefficients lie in the range of 0.20–0.40, which can be interpreted as stating that an increase in the primary deficit by one percent of GDP leads to an increase in the 10-year government bond yield by 20–40 bps.10 On the other hand, the coefficients on net or gross debt are again negative.

Table I.2.Summary of Baseline Regression Results
Primary BalanceNet/Gross Debt
JapanThe coefficients are at most 0.10

and statistically insignificant.
The coefficients are negative.
U.S. and U.K.The coefficient are in the range of

0.20–0.40 and statistically significant

at the 1 percent level in most cases.
The coefficients are negative.
France and GermanyThe coefficients are positive, but the

results are not as strong as the U.S.

and U.K.
The coefficients are negative.

Figure I.2.10-year Bond Yield and Primary Deficit

Source: IMF WEO data base.

1/ Period average. For 2009, period average until June.

7. While these results appear to suggest that in Japan the government bond yields have been less sensitive to the primary deficit than in other countries, they should be interpreted with caution. In particular, the results may be subject to the omitted variable problem even after using the instrumental variable method. For example, today’s yield may be affected by various current business cycle variables, which are not fully accounted for by growth or short-term monetary conditions (which are included in the regressions as controls) but may be correlated with the primary deficit. In principle, it is possible to avoid this problem, for example, by regressing future (expected) yields on deficits forecasted by the national authorities.11 However, unfortunately, such an analysis is currently not feasible for Japan, as the Japanese authorities (cabinet office) started to publish its 5-year forecasts for the deficit and the stock of debt only several years ago.

Table I.3.Baseline Regression Results
Dependent VariableMethodMain Independent VariableInstrumentResidual

Unit Root Test
Sample

Size
Primary deficitNet debtGross debt(ADF t stat)
Japan
(1) 10-year bonds yieldOLS0.09

(1.39)
----4.1638
(2) Spread with short-term interest rateIV0.09

(1.61)
--1st lag-37
Spread with short-term interest rateIV0.00

(0.03)
--2nd lag-36
(3) 10-year bonds yieldOLS--0.02

(-5.62)***
---3.7337
(4) 10-year bonds yieldOLS---0.02

(-5.27)***
--3.7437
U.S.
(1) 10-year bonds yieldOLS0.38

(8.12)***
----4.0438
(2) Spread with short-term interest rateIV0.36

(5.87)***
--1st lag-37
Spread with short-term interest rateIV0.20

(1.12)
--2nd lag-36
(3) 10-year bonds yieldOLS--0.04

(-1.93)*
---3.3337
(4) 10-year bonds yieldOLS---0.04

(-2.17)**
--3.3737
U.K.
(1) 10-year bonds yieldOLS0.27

(3.73)***
----3.3430
(2) Spread with short-term interest rateIV0.39

(3.73)***
--1st lag-29
Spread with short-term interest rateIV0.38

(2.70)**
--2nd lag-28
(3) 10-year bonds yieldOLS--0.09

(-1.76)*
---2.8229
(4) 10-year bonds yieldOLS---0.09

(-1.54)
--2.8729
France
(1) 10-year bonds yieldOLS0.17

(1.94)*
----3.1229
(2) Spread with short-term interest rateIV0.07

(0.32)
--1st lag-28
Spread with short-term interest rateIV0.16

(0.35)
--2nd lag-27
(3) 10-year bonds yieldOLS--0.09

(-4.67)***
---3.4428
(4) 10-year bonds yieldOLS---0.09

(-5.47)***
--3.3528
Germany
(1) 10-year bonds yieldOLS0.27

(2.66)**
----2.5333
(2) Spread with short-term interest rateIV0.88

(2.22)**
--1st lag-32
Spread with short-term interest rateIV3.24

(0.59)
--2nd lag-31
(3) 10-year bonds yieldOLS--0.05

(-6.15)***
---3.6332
(4) 10-year bonds yieldOLS---0.07

(-8.08)***
--3.6132

When the spread is the dependent variable, the short-term interest rate is not included as an independent variable.

Robust t statistics are reported in parentheses.

***, **, and * indicate the statistical significance at the 1 percent, 5 percent, and 10 percent, respectively.

When the spread is the dependent variable, the short-term interest rate is not included as an independent variable.

Robust t statistics are reported in parentheses.

***, **, and * indicate the statistical significance at the 1 percent, 5 percent, and 10 percent, respectively.

8. That said, other factors specific to Japan, which are not included in the regression analysis, may be contributing to the low sensitivity of JGB yields (IMF, 2009):

  • Large pool of household assets. Japan had enjoyed quite high household saving rates (over 10 percent) until around 2000 (Figure I.3), which contributed to a large build-up of household financial assets to help finance public debt.

  • Little dependence on external financing and home bias. JGBs have been financed largely by domestic investors (93 percent of holdings as of end-2008) who may be a more stable source of funds than foreigners. Smaller foreign holdings reflect higher home bias in Japan than in other advanced countries (IMF, 2005).

  • Existence of large and stable institutional investors. Japan Post Bank (previously the postal savings) had invested ¥156 trillion in JGBs (around 20 percent of the total JGBs) as of September 2008. In addition, the national pension represents a stable investor in JGBs, holding ¥82 trillion as of end-2008.

Figure I.3.Japan’s Household Saving Rate

Source: CaO

Source: Cabinet Office.

9. Indeed, once the stock of household financial wealth and the share of foreign holdings of JGBs are included as additional controls, the regression coefficient on the net/gross debt turns positive. However, the coefficient on the debt is still relatively small (around 0.01) with a moderate robust t-statistic (at most 1.3).12 These results suggest that estimates of the debt impact on the yields could be dampened if household financial wealth and foreign holdings of JGBs are not controlled.

Table I.4.Japan: Regression Results
Dependent VariableMethodMain Independent VariableAdditional Independent VariablesSample Size
Primary

deficit
Net

debt
Gross

debt
Japan
10-year bonds yieldOLS0.08

(1.40)
--Stock of household financial wealth Share of foreign holdings of JGBs29
10-year bonds yieldOLS-0.01

(1.22)
-Stock of household financial wealth Share of foreign holdings of JGBs29
10-year bonds yieldOLS--0.01

(1.31)
Stock of household financial wealth Share of foreign holdings of JGBs29

Assumed that the household financial wealth is nonstationary (the Dickey-Fuller p-value is 0.4) and that the estimated equations are cointegrated.

Robust t statistics are reported in parentheses.

***, **, and * indicate the statistical significance at the 1 percent, 5 percent, and 10 percent, respectively.

Assumed that the household financial wealth is nonstationary (the Dickey-Fuller p-value is 0.4) and that the estimated equations are cointegrated.

Robust t statistics are reported in parentheses.

***, **, and * indicate the statistical significance at the 1 percent, 5 percent, and 10 percent, respectively.

10. In addition, over the past ten years the Fiscal Investment and Loan Program (FILP) and the corporate sector may have been playing a supporting role in creating favorable market conditions.13

  • As a result of the FILP reform, which aimed to rationalize FILP lending to public agencies, FILP lending has shrunk, forcing these agencies to curtail their projects and rely more on private financing. This has reduced FILP liabilities substantially by around half to about ¥200 trillion (40 percent of GDP) since 2000. The downsizing has effectively created space for financing other public debt, as the FILP was largely financed by deposits in the postal savings and reserves in the public pension (before the reform). The impact of the downsizing is substantial; despite the the central governement’s large and persistent fiscal deficits in the early 2000s, public debt including the FILP has not increased over the past ten years.14

  • The corporate sector has been recording financial surpluses following its recovery from the crisis in the 1990s. Since the late 1990s, the corporate sector has been providing funds along with the household sector through banks, to help finance the increase in public debt.

Gross Public Debt

(In trillions of yen; eop)

Source: BoJ’s flow of funds statistics.

1/ Others are borrowing and local governments securities.

Financial Surpluses

(In percent of GDP)

Source: BoJ’s flow of funds statistics.

11. Going forward, structural shifts in household balance sheets and key market players could affect the absorptive capacity of the JGB market. These shifts may work to weaken some of the factors listed above. As the debt level rises and the market’s absorptive capacity declines, the yields could become more sensitive to the debt level as standard theory predicts. There is some empirical evidence consistent with the view that the yields’ response to the debt level is nonlinear and becomes significant once the debt exceeds a certain threshold,15 although determining such a threshold in the case of Japan is difficult. In this regard, the recent pickup in JGB yields (although relatively limited) following announcements of fiscal stimulus measures might suggest an increased risk premium perceived by market participants. They may also reflect increased roll-over risks for public debt.

Table I.5.Share of JGBs Holdings 1/(In percent)
Dec-00Dec-05Dec-06Dec-07Dec-08
Government 2/23.115.914.313.813.1
Of which:
Public Pension2.89.29.811.111.7
Central bank11.914.011.29.58.3
Financial institutions55.159.962.262.064.1
Of which:
Postal Savings7.018.520.3
Banks 3/22.317.016.335.036.1
Overseas5.94.75.57.06.8
Households2.24.04.85.35.2
Others 4/1.81.62.02.32.4
Total (in trillions of yen)391.2672.1674.6682.4699.6
Total excluding FILP bonds (in trillions of yen)391.2535.8534.8538.2560.4
Source: BoJ’s Flow of Funds statistics.

JGBs are the general account bonds and the Fiscal Investment Loan Program (FILP) bonds, and do not include financing bills.

Includes the Fiscal Investment and Loan Program (FILP).

Includes Japan Post Bank for Dec-07 and Dec-08.

Nonfinancial corporations and private nonprofit institutions serving households.

Source: BoJ’s Flow of Funds statistics.

JGBs are the general account bonds and the Fiscal Investment Loan Program (FILP) bonds, and do not include financing bills.

Includes the Fiscal Investment and Loan Program (FILP).

Includes Japan Post Bank for Dec-07 and Dec-08.

Nonfinancial corporations and private nonprofit institutions serving households.

Household sector

12. A large portion of JGBs is essentially financed by the household sector. While direct holdings of JGBs are only 5 percent of the total outstanding amount, if indirect channels are taken into account, at least around 50 percent of the total JGBs is financed by the household sector mainly through banks (including Japan Post Bank) and pension funds (Figure I.4).16

Figure I.4.Flow of Funds of the Household Sector

(In trillions of yen)

Source: BoJ’s flow of funds statistics (as of Dec 2008), Japan Post Bank (as of Sep 2008), and staff calculations.

13. Given the dominant role played by the household sector in public debt financing, a declining household saving rate driven by aging could put significant pressure on the market. While there was a slight pickup around 2006, the household saving rate has been on a trend decline (Figure I.3), consistent with the downward trend in household contributions to financial assets. With population aging, the saving rate is expected to decline further from the current level (2.2 percent as of FY2007). Indeed, recent data have suggested that there is already some negative impact of the aging process on the saving rate: according to the CaO, contributions to the decline in the household saving rate from rising consumption have been growing since FY2004 (Figure I.3).

Household Contribution to Financial Assets

(In percent of GDP)

Source: CEIC database.

14. Staff’s calculations suggest that without policy adjustment, the household ability to absorb public debt will continue to shrink toward 2020. Simulation results indicate that in 2019 gross public debt excluding the FILP could exceed the level of households’ financial assets, assuming no further contribution from household savings. Assuming a 2.2 percent of household income—the household saving rate in FY2007—contribution to accumulation of financial assets delays this cross-point by two years. These estimates also imply that by 2020 gross public debt could increase by around ¥350–400 trillion (70–80 percent of 2008 GDP) relative to household financial assets. The results indicate that domestic financing will likely become more difficult toward 2020, while other sources of funding are available including from overseas. Under current trends, funding may need to rely more on foreign sources to maintain stability.

Household Financial Assets and Gross Public Debt 1/

(In trillions of yen)

Source: Cabinet office and IMF WEO data base.

1/ Gross debt of the general government. Following the CaO’s definition (consistent with SNA 1993), gross debt does not include debt owed by the Fiscal Investment and Loan Program.

Financial sector

15. At the same time, financial reforms that have given institutional investors more flexibility could also hinder the market capacity. Changes in the investment behavior by the Government Pension Investment Fund may affect the JGB market beyond a decline in contributions arising naturally from aging. The pension fund no longer has an obligation to purchase JGBs, which the FILP issues (FILP bonds), and is now looking to expand its investment in risky assets.17 Similarly, the Japan Post Bank (previously the postal savings) is now allowed to expand its investment in other assets. Given the huge size of assets held by these institutions, even a moderate shift from JGBs to other assets could have a significant impact on the market (10 percent shift would amount to ¥20–30 trillion (4–6 percent of GDP)).

16. A decline in the home bias particularly among private financial institutions could also affect the market’s absorptive capacity in the medium-term. In the current global financial turmoil, domestic (institutional) investors may have shifted to safe domestic assets including JGBs, seeking a safe haven. However, once financial market conditions recover, appetite for risky foreign assets could return.

17. The Bank of Japan (BoJ), which currently holds about 8 percent of total JGBs, would likely continue to play an important role in market stability. Its recent decision to increase monthly purchase of JGBs appears to have helped to stabilize market conditions.

BoJ’s Monthly Outright Purchase of Long-term JGBs(In trillions of yen)
Before Aug. 2001-0.4
Aug. 2001-0.6
Dec. 2001-0.8
Feb. 2002-1.0
Oct. 2002-1.2
Jan. 2008-1.4
Mar. 2009-1.8
Source: BoJ.
Source: BoJ.

Other domestic sectors

18. The role of the FILP and the corporate sector to facilitate smooth financing of public debt may also diminish. The room for further downsing of the FILP has been curtailed. At the same time, crisis related lending needs financed by the FILP have increased. The financial surpluses in the corporate sector have also declined in recent years (around 1 percent of GDP in both 2007 and 2008), and may not rebound so soon in the current recession.

Foreign sector

19. Given the small foreign holdings of JGBs, shifts in foreign investor behavior are unlikely to have a significant impact for the time being. The smaller increase in JGB yields and lower volatility relative to other advance economies might also reflect the smaller foreign holdings of JGBs. That said, in the near-term, the possibility of a negative impact on the JGB market of sharp increases in sovereign bond issuances across the world (e.g., through crowding-out of JGBs by other sovereign debt) cannot be ruled out.

Correlation between Share of Foreign Holdings and Volatility of Sovereign Yields:

After Lehman Shock

Source: Bloomberg, Japanese Ministry of Finance, ECB and Daiwa Research.

C. Policy Issues

20. Going forward, the gross public financing requirement is likely to be substantial. The gross financing need is estimated to reach 50 percent of GDP in 2009 (including rollover of financing bills), and is projected to rise further reflecting a sharp increase in debt. To ensure the smooth refinancing of this debt, both medium-term and short-term responses are necessary.

  • Medium-term fiscal framework. Over the medium-term, it is critical to establish a credible framework for ensuring fiscal sustainability. A key element in the framework is a clear timetable for comprehensive tax and expenditure reforms once the economy recovers.

  • Public debt management. To stabilize yields and ensure stable absorption of debt by the market, the timing of debt issuance and maturity structure should continue to be carefully determined. The authorities’ ongoing efforts to communicate clearly with market participants also remain critical in this respect.

D. Conclusion

21. Historically, Japan’s public debt has been financed in a fairly smooth manner. The large pool of household savings and the stable domestic institutional investor base appear to have contributed to this successful experience. However, Japan is already undergoing rapid population aging, which will likely limit the market’s future absorptive capacity of public debt. In addition, structural shifts in institutional investors could also serve to reduce market demand. To maintain market stability, sound public debt management will be critical in the near term, but over the longer term progress fiscal consolidation through comprehensive revenue and expenditure reforms will be required.

Prepared by Kiichi Tokuoka.

The amount of financing bill outstanding was ¥109 trillion (20 percent of GDP) as of end-2008.

For further details, see Appendix II in Japan: 2009 Article IV Consultation—Staff Report.

Stationarity assumptions on time series data are discussed in Appendix I.1.

A lag of at most two years is chosen to maintain the strength of the instrument (the third lag is often a weak instrument).

The spread is not regressed on debt, since the former is assumed to be stationary while the latter is unlikely to be so (see Appendix I.1).

This chapter is not the first to report a negative coefficient on public debt. Some earlier articles have also reported negative coefficients across countries using panel data (e.g., Faini, 2006; Ardagna, Caselli, and Lane, 2004) and for some countries using country-by-country time series data (e.g., Caporale and Williams, 2002). One possible interpretation of negative signs is that when the level of sovereign debt is low enough and investors believe that the debt is of high quality, they may switch from low quality debt to sovereign as more sovereign debt is issued, reducing the yield (Caporale and Williams, 2002).

When the U.S. 10-year bond yield is an explanatory variable, cointegration with other variables is assumed. On the other hand, the spread is assumed to be stationary and can be instrumented by its own lag, to avoid the endogeneity problem.

Engen and Hubbard (2004) argue that the effects of government debt held such as by the central bank, which does not crowd out domestic private capital, need to be appropriately controlled for.

These estimates are roughly the same size as those Laubach (2003) obtained, using forecasted fiscal deficits of the U.S.

Laubach (2003) finds empirical evidence that in the U.S. future (expected) yields are responsive to forecasted deficits and debt levels, which are less likely to be affected by the current business cycle.

The coefficient on the stock of household financial wealth is negative (as predicted) with a large t-statistic (around 3), while that on the share of foreign holdings is close to zero.

Under the FILP, the government provides funds to various government affiliated corporations for implementing public projects, such as infrastructure.

The general government debt on the SNA basis excludes FILP liabilities.

Other indirect holdings of JGBs by the household sector which are not included in the figure are possible. For example, a part of the JGBs holdings by the nonfinancial sector, whose equities the household sector owns, could be included in them.

As a result of the FILP reform in 2001, the postal savings and the public pension funds stopped lending for public projects through the FILP. During the transitional period after the reform, the postal savings and the national pension funds were required to accept government bonds which the FILP issued.

Appendix I.1

1. This appendix details stationarity assumptions on time series data used for the baseline regressions in the main text.

2. The results of Dickey-Fuller tests are reported in the table. A unit root test is clearly not rejected for the 10-year government bond yield and the general government net/gross debt (high p-values across countries). The test results for the short-term interest rate are more ambiguous, but all of these four variables are assumed to be nonstationary.

Dickey-Fuller t statistics
JapanU.S.U.K.FranceGermany
10-year bond yield-0.63-0.87-0.62-0.82-1.32
p-value0.860.800.870.810.62
Short-term int rate-1.55-1.47-0.94-1.41-2.38
p-value0.510.550.780.580.15
Inflation-2.18-1.92-2.31-1.12-1.82
p-value0.210.320.170.710.37
Real GDP growth-3.37-4.74-2.66-4.05-4.23
p-value0.010.000.080.000.00
General government primary deficit-1.45-2.17-1.46-2.50-2.83
p-value0.560.220.550.110.05
General government net debt1.78-0.94-1.33-1.83-1.53
p-value1.000.770.610.360.52
General government gross debt1.85-0.72-1.24-1.10-0.76
p-value1.000.840.660.710.83
Spread between 10-year bond yield and short-term int rate-3.80-3.50-2.71-3.82-3.57
p-value0.000.010.070.000.01

3. Further assumptions by regression are as follows:

Dependent variableMain independent variableAssumption
(1) 10-year bond yieldGeneral government primary

deficit
The 10-year bond yield and the short-

term interest rate are cointegrated.
(2) Spread with short-term interest rateGeneral government primary

deficit
All the variables (spread, inflation, real

GDP growth, and general government

primary deficit) are stationary.
(3) 10-year bond yieldGeneral government net

debt
The 10-year bond yield, the short-term

interest rate, and the net debt are

cointegrated.
(4) 10-year bond yieldGeneral government gross

debt
The 10-year bond yield, the short-term

interest rate, and the gross debt are

cointegrated.
References

Other Resources Citing This Publication