Fiscal Policy and the term Structure of Interest Rates: An Intertemporal Optimizing Analysis
AbstractThe effects of government expenditure on the dynamic evolution of the term structure of interest rates are analyzed in an infinite horizon intertemporal optimizing macroeconomic framework. Three types of disturbances are discussed: unanticipated and anticipated permanent increases, and a temporary decrease. In the case of anticipated future and temporary disturbances, the lead time in the former, and the duration in the latter, are critical determinants of the dynamics. For a very temporary shock, the short-term and long-term rates will diverge in the short run. While most of the analysis focuses on infinitesimally short, and infinitely long bonds, the dynamics of the entire yield curve are also considered. Copyright 1992 by Ohio State University Press.
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Bibliographic InfoPaper provided by University of Washington, Department of Economics in its series Working Papers with number 91-20.
Length: 24 pages
Date of creation: 1991
Date of revision:
economic equilibrium ; government spending policy;
Other versions of this item:
- Fisher, Walter H & Turnovsky, Stephen J, 1992. "Fiscal Policy and the Term Structure of Interest Rates: An Intertemporal Optimizing Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 24(1), pages 1-26, February.
- Fisher, W.H. & Turnovsky, S.J., 1991. "Fiscal Policy and the term Structure of Interest Rates: An Intertemporal Optimizing Analysis," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 91-20, Department of Economics at the University of Washington.
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- Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 19(4), pages 747-786, May.
- Leanne Ussher, 1998. "Do Budget Deficits Raise Interest Rates? A Survey of the Empirical Literature," Working Papers, Department of Economics, Queens College of the City University of New York 0005 Classification- JEL:, Department of Economics, Queens College of the City University of New York.
- Agenor, Pierre-Richard, 1995. "Monetary shocks and exchange rate dynamics with informal currency markets," International Review of Economics & Finance, Elsevier, Elsevier, vol. 4(3), pages 211-226.
- Koutsobinas, Theodore, 2011. "Animal spirits, liquidity-preference and Keynesian behavioural macroeconomics: An intertemporal framework," MPRA Paper 43027, University Library of Munich, Germany.
- X. Wang & Bill Yang, 2012. "Yield Curve Inversion and the Incidence of Recession: A Dynamic IS-LM Model with Term Structure of Interest Rates," International Advances in Economic Research, International Atlantic Economic Society, vol. 18(2), pages 177-185, May.
- Chang, Wen-ya, 1999. "Government spending, endogenous labor, and capital accumulation," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 23(8), pages 1225-1242, August.
- Stefan F. Schubert & Stephen J. Turnovsky, 2006. "Anticipated Fiscal Policy Changes and Goods Market Adjustments," German Economic Review, Verein fÃ¼r Socialpolitik, Verein fÃ¼r Socialpolitik, vol. 7, pages 135-161, 05.
- Thierry Warin & Kenneth Donahue, 2006. "The Stability and Growth Pact: A European Answer to the Political Budget Cycle?," Middlebury College Working Paper Series 0606, Middlebury College, Department of Economics.
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