Fiscal policy and interest rates in a small open economy
This paper contains an empirical investigation of the effects of fiscal policy on interest rates based on a conventional stochastic macro model designed for a small open economy. The empirical investigation utilizes data for Sweden, a country which has experienced very large fluctuations in the government budget deficits and in the short- and long-term nominal interest rates, thus providing a better empirical test than previous studies. According to the empirical results, larger budget deficits induce higher interest rates, as implied by conventional macroeconomic theory.
Volume (Year): 14 (2001)
Issue (Month): 2 (Autumn)
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