Are Government Bonds Net Wealth? Evidence for the United States
AbstractThis paper investigates whether government bonds are viewed as net wealth. If they are, the nominal interest rate in steady-state equilibrium should be an increasing function of the government debt and of government spending. Using forward interest rates realized during World War II, this paper finds no evidence of such a relationship. These data afford an especially powerful test because the federal debt rose from 29 to 106 percent of trend output during the war. This enormous increase in government debt actually appears to have reduced forward interest rates by a statistically-significant, but small, amount. Copyright 1988 by Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 26 (1988)
Issue (Month): 4 (October)
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- Michel Normandin, 1994.
"Budget Deficit Persistence and the Twin Deficits Hypothesis,"
Cahiers de recherche CREFE / CREFE Working Papers
31, CREFE, Université du Québec à Montréal.
- Normandin, Michel, 1999. "Budget deficit persistence and the twin deficits hypothesis," Journal of International Economics, Elsevier, vol. 49(1), pages 171-193, October.
- Michel Normandin, 1996. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Macroeconomics 9607001, EconWPA.
- Tito B.S. Moreira & Geraldo Silva Souza, 2009. "A Nominal Theory of the Nominal Rate of Interest and the Price Level: Some Empirical Evidence," Economics Bulletin, AccessEcon, vol. 29(4), pages 3120-3125.
- Berument, Hakan, 1998. "Central Bank Independence and Financing Government Spending," Journal of Macroeconomics, Elsevier, vol. 20(1), pages 133-151, January.
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