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Government Debt and the Demand for Money: An Extreme Bound Analysis

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  • Deravi, M Keivan
  • Hegji, Charles E
  • Moberly, H Dean

Abstract

The article provides evidence that there is a relationship between government debt and interest rates via the demand for money. This relationship is examined through the wealth effect of government debt on money demand, and the robustness of the results is tested by the use of extreme bound analysis in addition to standard econometric techniques. The authors find that ordinary least squares regression shows government debt affecting the demand for money positively, implying that federal government debt is net wealth. In addition, the extreme bound analysis shows that the estimates of the government debt coefficient are robust under alternative specifications of the Goldfeld model. Copyright 1990 by Oxford University Press.

Suggested Citation

  • Deravi, M Keivan & Hegji, Charles E & Moberly, H Dean, 1990. "Government Debt and the Demand for Money: An Extreme Bound Analysis," Economic Inquiry, Western Economic Association International, vol. 28(2), pages 390-401, April.
    • Handle: RePEc:oup:ecinqu:v:28:y:1990:i:2:p:390-401
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    Cited by:

    1. Cook, Paul & Uchida, Yuichiro, 2001. "Privatisation and Economic Growth in Developing Countries," Centre on Regulation and Competition (CRC) Working papers 30634, University of Manchester, Institute for Development Policy and Management (IDPM).
    2. Debi Prasad Bal & Badri Narayan Rath, 2018. "Do Macroeconomics Channels Matter for Examining Relationship Between Public Debt and Economic Growth in India?," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(1), pages 121-142, December.
    3. Chung, Haejoo & Muntaner, Carles, 2006. "Political and welfare state determinants of infant and child health indicators: An analysis of wealthy countries," Social Science & Medicine, Elsevier, vol. 63(3), pages 829-842, August.
    4. Pene Kalulumia, 2000. "Government Debt, Interest Rates And International Capital Flows: Evidence From Cointegration," Cahiers de recherche 00-03, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    5. De la Barra, Victor H. & Marchant, Mary A. & Isinika, Aida C., 1995. "Stabilization Policies And Agricultural Impacts In Developing Countries: The Case Of Bolivia," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 27(1), pages 1-13, July.
    6. Ehrlich, Isaac & Liu, Zhiqiang, 1999. "Sensitivity Analyses of the Deterrence Hypothesis: Let's Keep the Econ in Econometrics," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 455-487, April.
    7. Debi Prasad Bal & Badri Narayan Rath, 2016. "Is Public Debt a Burden for India?," Economic Papers, The Economic Society of Australia, vol. 35(2), pages 184-201, June.
    8. Ibrahim, Taofik, 2017. "Budget deficit-money demand nexus in Nigeria: A myth or reality?," MPRA Paper 86265, University Library of Munich, Germany, revised 09 Nov 2017.

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