Federal deficits and the real rate of interest in the United States: A note
AbstractThis brief Note provides strong empirical evidence that federal governÂment deficits can indeed have a positive and significant impact upon shortÂ term interest rates; the findings in this paper thereby establish another mechanism for the transmission of crowding out. This study differs from most other studies in the adoption of two particular procedures. First, unlike most (although not all) other related studies, the rate of interest is expressed as a real rate; this is done in simple fashion by subtracting the inflation rate (of the GNP deflator) from the nominal rate of interest (taken to be the 3 month T-bill rate). Second, also unlike most (although not all) other related studies, the deficit is expressed in real terms and then divided by the real GNP level; expressing the deficit in this ratio form enables us to judge the deficit relative to the size of the economy which must finance it. No previous related study to date has adopted both of these procedures, and most studies of this topic have adopted neither procedure.
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Bibliographic InfoArticle provided by Springer in its journal Public Choice.
Volume (Year): 53 (1987)
Issue (Month): 1 (January)
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Web page: http://www.springerlink.com/link.asp?id=100332
Other versions of this item:
- Cebula, Richard, 1986. "Federal Deficits and the Real Rate of Interest in the United States: A Note," MPRA Paper 51626, University Library of Munich, Germany.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- H69 - Public Economics - - National Budget, Deficit, and Debt - - - Other
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mascaro, Angelo & Meltzer, Allan H., 1983. "Long- and short-term interest rates in a risky world," Journal of Monetary Economics, Elsevier, vol. 12(4), pages 485-518, November.
- Lee C. Spector, 2005.
"Macroeconomic Models and the Determination of Crowding Out,"
200511, Ball State University, Department of Economics, revised Mar 2006.
- Spector, Lee C, 1999. "Macroeconomic Models and the Determination of Crowding Out," Public Finance = Finances publiques, , vol. 54(1-2), pages 84-98.
- Richard Cebula, 1988.
"Crowding out, deficits, and interest rates: Reply,"
Springer, vol. 58(1), pages 95-97, July.
- Kanhaya Gupta, 1989. "Budget deficits and interest rates in the United States," Public Choice, Springer, vol. 60(1), pages 87-92, January.
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