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Budget deficits and interest rates in the United States

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  • Kanhaya Gupta

Abstract

In this paper, an attempt has been made to reexamine the effect of budget deficits in the United States on interest rates. Unlike the previous studies which use only one definition of the dependent variable, we have used all three, namely, the nominal and the ex-post and the ex-ante real interest rate. Further, unlike previous studies, we considered both short-term and long-term interest rates. Our results provide absolutely no support for the proposition that federal deficits affect interest rates and thus contradict the recent findings by Cebula (1987) and Kolluri and Giannaros (1987). Finally, the paper provides some further support for the ‘inverted’ Fisher hypothesis proposed by Carmichael and Stebbing (1983). Copyright Kluwer Academic Publishers 1989

Suggested Citation

  • Kanhaya Gupta, 1989. "Budget deficits and interest rates in the United States," Public Choice, Springer, vol. 60(1), pages 87-92, January.
    • Handle: RePEc:kap:pubcho:v:60:y:1989:i:1:p:87-92
    DOI: 10.1007/BF00124314
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    References listed on IDEAS

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    1. Richard Cebula, 1987. "Federal deficits and the real rate of interest in the United States: A note," Public Choice, Springer, vol. 53(1), pages 97-100, January.
    2. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
    3. Kolluri, Bharat R. & Giannaros, Demetrios S., 1987. "Budget deficits and short-term real interest rate forecasting," Journal of Macroeconomics, Elsevier, vol. 9(1), pages 109-109.
    4. Evans, Paul, 1987. "Do budget deficits raise nominal interest rates? : Evidence from six countries," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 281-300, September.
    5. Makin, John H, 1983. "Real Interest, Money Surprises, Anticipated Inflation and Fiscal Deficits," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 374-384, August.
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    Cited by:

    1. Yu HSING, 2016. "Is real depreciation expansionary? The case of the Czech Republic," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 93-100, Autumn.
    2. Yu HSING, 2016. "Is real depreciation expansionary? The case of the Czech Republic," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 93-100, Autumn.
    3. HARJIT K. Arora & PAMI Dua, 1993. "Budget Deficits, Domestic Investment, And Trade Deficits," Contemporary Economic Policy, Western Economic Association International, vol. 11(1), pages 29-44, January.
    4. Carlos David Ardila-Dueñas & Hernán Rincón-Castro, 2019. "¿Cómo y qué tanto impacta la deuda pública a las tasas de interés de mercado?," Borradores de Economia 1077, Banco de la Republica de Colombia.
    5. Bob Barnes, 2007. "A Cointegrating approach to budget deficits and long-term interest rates," Applied Economics, Taylor & Francis Journals, vol. 40(2), pages 127-133.
    6. Augustine C. Arize & Ioannis N. Kallianotis & Scott Liu & John Malindretos & Alex Panayides, 2014. "National Debt and Its Effects on Several Other Variables: An Econometric Study of the United States," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(4), pages 98-113, October.
    7. 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 –.
    8. Yu Hsing, 2016. "Is Real Depreciation Expansionary? The Case of Ireland," Bulletin of Applied Economics, Risk Market Journals, vol. 3(1), pages 1-9.
    9. Yu Hsing, 2016. "Is Real Depreciation Contractionary? The Case of South Korea," Economics Bulletin, AccessEcon, vol. 36(4), pages 1951-1958.
    10. HSING, Yu, 2016. "Is Real Depreciation Expansionary? The Case Of The Slovak Republic," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 16(2), pages 55-62.
    11. André Pinho & Ricardo Barradas, 2021. "Determinants of the Portuguese government bond yields," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2375-2395, April.

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