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Deficits and Interest Rates as Evidence of Ricardian Equivalence

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Author Info

  • David C. Rose

    (University of Missouri, St. Louis)

  • David R. Hakes

    (University of Northern Iowa)

Abstract

A number of empirical studies have failed to find a significant relationship between deficits and interest rates. This "non-finding" has become something of a stylized fact among many economists and is often cited as evidence of the validity of the Ricardian equivalence theorem. In this paper we show that estimates of reduced-form interest rate equations do not provide direct information about structural parameters that might reveal Ricardian equivalence. As a result, an insignificant relationship between deficits and interest rates is only a necessary, not a sufficient, condition for Ricardian equivalence.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume21/V21N1P57_66.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 21 (1995)
Issue (Month): 1 (Winter)
Pages: 57-66

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Handle: RePEc:eej:eeconj:v:21:y:1995:i:1:p:57-66

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Related research

Keywords: Deficit; Ricardian Equivalence;

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Cited by:
  1. António Afonso, 2001. "Non-Keynesian Effects of Fiscal Policy in the EU-15," Working Papers Department of Economics 2001/07, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. António Afonso & Christophe Rault, 2010. "Short and Long-run Behaviour of Long-term Sovereign Bond Yields," CESifo Working Paper Series 3249, CESifo Group Munich.
  3. António Afonso, 2007. "An Avenue for Expansionary Fiscal Contractions," The IUP Journal of Public Finance, IUP Publications, vol. 0(3), pages 7-15, August.
  4. William Gissy, 1999. "Net treasury borrowing and interest-rate changes," Journal of Economics and Finance, Springer, vol. 23(1), pages 23-29, March.
  5. António Afonso, 2001. "Government indebtedness and european consumers behaviour," Working Papers Department of Economics 2001/12, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.

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