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, 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 91-20, Department of Economics at the University of Washington.
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