A Note on Interest Rates and Structural Federal Budget Deficits
AbstractThis paper provides evidence on the response of interest rates to Federal budget deficits. A simple model is presented that incorporates the role of monetary policy in the determination of short-run interest rates and that ascribes the effects of government budget imbalances on the term structure of interest rates to uncertainty about the expected evolution of inflation and real interest rates. Empirical results support the view that the term structure of interest rates is affected by Federal budget deficits, with a significant positive response of intermediate- and long-term interest rates relative to short-term rates in response to budget deficits.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 21069.
Date of creation: Sep 2002
Date of revision: Oct 2002
interest rates; deficit; budget;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- H6 - Public Economics - - National Budget, Deficit, and Debt
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