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At Long Last, the Feared (Portfolio) Crowding Out Has Materialized

The implication of a (massive) revision to the expected path of government debt relative to baseline is an increase in the slope of the yield curve. Some portion comes from the expectations hypothesis of the term structure, some from an increase in the risk premium. [lecture notes on portfolio crowding out] [lecture notes on expectations hypothesis of term structure]

yieldcurve_8_9nov16

Figure 1: Yield curve as of 8 November (blue), and 9 November (green). Source: US Treasury.

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