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Fiscal shocks, public debt, and long-term interest rate dynamics

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  • Marattin, Luigi

    ()
    (University of Bologna (Italy))

  • Paesani, Paolo

    (University of Rome-Tor Vergata (Italy))

  • Salotti, Simone

    (National University of Ireland, Galway (Ireland))

Abstract

Public Finances worldwide have been severely hit by the 2008-2009 Great Recession, stimulating the debate on the consequences of growing fiscal imbalances. Building on Paesani et al. (2006), this paper focuses on the USA, Germany and Italy over the 1983-2009 period and studies the effects of fiscal shocks and government debt accumulation on long-term interest rates, both nationally and across borders. Based on a atheoretical framework, the empirical analysis disentangles permanent and transitory components of interest rates dynamics finding that sustained debt accumulation leads, at least temporarily, to higher long-term interest rates. The is particularly true for the Italian case. There is also evidence of significant cross-country linkages, mainly between Italy and the USA.

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Bibliographic Info

Paper provided by Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE) in its series Working Papers with number 14/2011.

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Length: 36 pages
Date of creation: 13 Apr 2011
Date of revision:
Handle: RePEc:ris:cigewp:2011_014

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Postal: Universidade Portucalense – Economics and Management Department (CIGE – Centro de Investigação em Gestão e Economia), Rua Dr. António Bernardino de Almeida, 541-619, 4200 – 072 Porto, Portugal
Web page: http://www.uportu.pt/site-scripts/centro_pagina.asp?codmenu=71&codcentro=24
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Keywords: Public debt; long-term interest rates; cointegration; common trends.;

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