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An empirical analysis of the impact of federal budget deficits on long-term nominal interest rate yields, 1973.2-1995.4, using alternative expected inflation measures

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  • Cebula, Richard J.

Abstract

Using two alternative measures of expected inflation, this study investigates the impact of federal budget deficits on nominal long‐term interest rate yields for the 1973.2–1995.4 period. Based on an open‐economy loanable funds framework, four instrumental variable estimates in first differences are provided. In all cases, the budget deficit is found to elevate the nominal long‐term interest rate.
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  • Cebula, Richard J., 1998. "An empirical analysis of the impact of federal budget deficits on long-term nominal interest rate yields, 1973.2-1995.4, using alternative expected inflation measures," Review of Financial Economics, Elsevier, vol. 7(1), pages 55-64.
    • Handle: RePEc:eee:revfin:v:7:y:1998:i:1:p:55-64
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    1. Zelhorst, Dick & de Haan, Jakob, 1991. "Federal Government Budget Deficits and Interest Rates: Comment," Public Finance = Finances publiques, , vol. 46(2), pages 323-330.
    2. Thies, Clifford F, 1986. "Business Price Expectations: 1947-83," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 336-354, August.
    3. McMillin, W. Douglas, 1986. "Federal deficits and short-term interest rates," Journal of Macroeconomics, Elsevier, vol. 8(4), pages 403-422.
    4. Hoelscher, Gregory, 1986. "New Evidence on Deficits and Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 1-17, February.
    5. James R. Barth & George Iden & Frank S. Russek, 1984. "Do Federal Deficits Really Matter?," Contemporary Economic Policy, Western Economic Association International, vol. 3(1), pages 79-95, September.
    6. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
    7. Cebula, Richard J & Belton, Willie J, 1993. "Government Budget Deficits and Interest Rates in the United States: Evidence for Closed and Open Systems Put into Perspective, 1955-1989," Public Finance = Finances publiques, , vol. 48(2), pages 188-209.
    8. Richard Cebula, 1989. "More on budget deficits and interest rates in the United States," Public Choice, Springer, vol. 60(1), pages 93-97, January.
    9. Mascaro, Angelo & Meltzer, Allan H., 1983. "Long- and short-term interest rates in a risky world," Journal of Monetary Economics, Elsevier, vol. 12(4), pages 485-518, November.
    10. Evans, Paul, 1987. "Interest Rates and Expected Future Budget Deficits in the United States," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 34-58, February.
    11. Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, vol. 79(4), pages 713-732, September.
    12. Feldstein, Martin S & Eckstein, Otto, 1970. "The Fundamental Determinants of the Interest Rate," The Review of Economics and Statistics, MIT Press, vol. 52(4), pages 363-375, November.
    13. Makin, John H, 1983. "Real Interest, Money Surprises, Anticipated Inflation and Fiscal Deficits," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 374-384, August.
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    Cited by:

    1. Peter Claeys & Rosina Moreno & Jordi Suriñach, 2010. "Fiscal Policy and Interest Rates: The Role of Financial and Economic Integration," Advances in Spatial Science, in: Antonio Páez & Julie Gallo & Ron N. Buliung & Sandy Dall'erba (ed.), Progress in Spatial Analysis, pages 311-336, Springer.
    2. Carlos Vieira, 2004. "The Deficit?Interest Rate Connection: an empirical assessment of the EU," Economics Working Papers 5_2004, University of Évora, Department of Economics (Portugal).
    3. Kalteier, Eva-Maria & Posch, Peter N., 2013. "Sovereign asset values and implications for the credit market," Review of Financial Economics, Elsevier, vol. 22(2), pages 53-60.
    4. Richard J. Cebula, 2014. "Impact of Federal Government Budget Deficits on the Longer Term Real Interest Rate in the U.S.: Evidence Using Annual and Quarterly Data, 1960-2013," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 60(1), pages 23-40.
    5. Richard J. Cebula, 2014. "An exploratory analysis of the impact of budget deficits and other factors on the ex post real interest rate yield on tax-free municipal bonds in the United States," Applied Financial Economics, Taylor & Francis Journals, vol. 24(19), pages 1297-1302, October.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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