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Budget Deficits and Interest Rates

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Author Info

  • 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 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 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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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/42.

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Length: 19
Date of creation: 01 Feb 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/42

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Related research

Keywords: Budget deficits; Interest rates; inflation; budget deficit; fiscal policy; money supply; nominal interest rate; real interest rate; real interest rates; fiscal deficits; monetary policy; monetary economics; nominal interest rates; real money; account deficits; fiscal stabilization; adaptive expectations; real money supply; inflation rate; debt obligations; fiscal affairs; effect of money growth; fiscal affairs department; fiscal incentives; macroeconomic performance; money growth; public finances;

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References

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Citations

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Cited by:
  1. Tang, Hsiao Chink & Liu, Philip & Cheung, Eddie C., 2013. "Changing impact of fiscal policy on selected ASEAN countries," Journal of Asian Economics, Elsevier, vol. 24(C), pages 103-116.
  2. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
  3. Popescu, Razvan-Florin & Prodan, Sergiu, 2010. "The analysis of budget rules and macroeconomic implications in several developed economies," MPRA Paper 25897, University Library of Munich, Germany, revised 2010.
  4. David L. Bevan, 2010. "Fiscal policy issues for Tanzania," LSE Research Online Documents on Economics 36380, London School of Economics and Political Science, LSE Library.
  5. Ajax Moreira & Katia Rocha, 2009. "A Política Fiscal e as Taxas de Juros Domésticas nos Países Emergentes," Discussion Papers 1438, Instituto de Pesquisa Econômica Aplicada - IPEA.

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