The Influence of Debt-to-GDP on National Monetary Policy and Bond Market

Abstract

Debt-to-GDP ratio can commendably indicate the ability of serving debt of a country and it has correlation with inflation ratio, actual ratio, deficit ratio and GDP ratio. Moreover, the debt-to-GDP ratio can be predicted with other ratios. This paper studies on these ratios and explores the impact of these ratios on the US bond and currency market and gives some credible suggestions. The paper uses Pearson analysis to study the correlation of the five ratios. Further, the degree of the correlation is presented. Linear and ridge regression are used to forecast the Debt-to-GDP ratio fluctuations and the prediction model and formula are also given. The result of the paper is significant for investors to grasp the correlation and seize better opportunity. For nation administrator, the paper gives a more accurate method to predict future ratios thus preparing ahead of schedule.