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Government Borrowing And The Longterm Interest Rate: Application Of An Extended Loanable Funds Model To The Slovak Republic

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  • Yu Hsing

Abstract

Extending the open-economy loanable funds model, this paper finds that more government borrowing as a percent of GDP leads to a higher government bond yield, that a higher real money market rate, a higher expected inflation rate, a higher EU government bond yield, or a decrease in the Slovak nominal effective exchange rate would increase the Slovak government bond yield, and that the positive coefficient of the percent change in real GDP is insignificant at the 10% level. When the standard closedeconomy or open-economy loanable funds model is considered, except that the positive coefficient of the ratio of the net capital inflow to GDP is insignificant at the 10% level, other results are similar.

Suggested Citation

  • Yu Hsing, 2010. "Government Borrowing And The Longterm Interest Rate: Application Of An Extended Loanable Funds Model To The Slovak Republic," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 55(184), pages 58-70, January –.
    • Handle: RePEc:beo:journl:v:55:y:2010:i:184:p:58-70
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    More about this item

    Keywords

    Government borrowing; long-term interest rate; expected inflation; world interest rate; exchange rate;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance

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