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Budget deficits and interest rates: a fresh perspective

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  • Ari Aisen
  • David Hauner

Abstract

We extend the literature on budget deficits and interest rates in three ways: we examine both advanced and emerging economies and for the first time a large emerging market panel; explore interactions to explain some of the heterogeneity in the literature; and apply system Generalized Method of Moments (GMM). There is overall a highly significant positive effect of budget deficits on interest rates, but the effect depends on interaction terms and is only significant under one of the several conditions: deficits are high, mostly domestically financed, or interact with high domestic debt; financial openness is low; interest rates are liberalized; or financial depth is low.

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File URL: http://hdl.handle.net/10.1080/00036846.2012.667557
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 45 (2013)
Issue (Month): 17 (June)
Pages: 2501-2510

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Handle: RePEc:taf:applec:45:y:2013:i:17:p:2501-2510

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Cited by:
  1. Bernd Hayo & Matthias Uhl, 2012. "Regional Effects of Federal Tax Shocks," MAGKS Papers on Economics 201217, Philipps-Universit├Ąt Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Lanzafame, Matteo & Nogueira, Reginaldo, 2013. "Inflation targeting and interest rates," MPRA Paper 46153, University Library of Munich, Germany.
  3. Ieva Sakalauskaite & Roel Beetsma & Massimo Giuliodori, 2013. "Long-Term Interest Rates and Public Debt Maturity," CESifo Working Paper Series 4408, CESifo Group Munich.

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