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A Brief Empirical Note on the Impact of Budget Deficits on the Real Municipal Bond Rate

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  • Richard J. Cebula

    (Florida Atlantic University)

Abstract

This article empirically investigates the impact of the federal budget deficit on the real interest-rate yield on high-grade, long-term municipal bonds. The model uses quarterly data and covers the period 1971:4 through 1985:4. Estimating in first-difference form by instrumental variables, it is found that the federal budget deficit does, in fact, elevate the real municipal bond rate. This finding implies at least some degree of crowding out of the state and local government sectors.

Suggested Citation

  • Richard J. Cebula, 1991. "A Brief Empirical Note on the Impact of Budget Deficits on the Real Municipal Bond Rate," Public Finance Review, , vol. 19(4), pages 437-443, October.
    • Handle: RePEc:sae:pubfin:v:19:y:1991:i:4:p:437-443
    DOI: 10.1177/109114219101900404
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    References listed on IDEAS

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    1. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
    2. 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.
    3. 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.
    4. Cebula, Richard J. & Bates, Kimberly & Marks, Louise & Roth, Allison, 1988. "Federal Government Budget Deficits and Interest Rates in the United States: An Empirical Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 41(1-2), pages 1-7.
    5. James R. Barth & George Iden & Frank S. Russek, 1984. "Do Federal Deficits Really Matter?," Contemporary Economic Policy, Western Economic Association International, vol. 3(1), pages 79-95, September.
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    Cited by:

    1. Pami Dua, 1993. "Interest Rates, Government Purchases, and Budget Deficits: a Forward-Looking Model," Public Finance Review, , vol. 21(4), pages 470-478, October.
    2. R.J. Cebula, 1997. "Government deficit, ex post real long-term interest rates and causality," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 50(202), pages 325-336.

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