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Fiscal Deficits And Interest Rates In Brics Economies: Testing The Keynesian-Ricardian Opposition

Author

Listed:
  • Edward Kagiso MOLEFE

    (University of the Free State)

  • Gisele MAH

    (North-West University)

Abstract

This current study was aimed at exploring the consequential effects of both short-and long-term interest rates on fiscal deficits in BRICS economies. The panel vector error correctionmodel (PVECM) techniques were employed to capture both long-run and short-run dynamics between variables. Using annual panel data, spanning the period 1995 to 2019, which was derived from OECD and IMF, this current study discovered a positive and significant relationship between both short-and long-term interest rates in BRICS economies. Moreover, the results of the study revealed a negative and significant relationship between GDP and fiscal deficits. These results confirmed that fiscal deficits hypothetically crowd out private investment and consumption through increased effects on interest rates. Therefore, the implementation of policy mix (interaction between monetary policy and fiscal policy) was recommended to unnecessary or unproductive government expenditure that may result in increased fiscal deficits and interest rate in BRICS economies.

Suggested Citation

  • Edward Kagiso MOLEFE & Gisele MAH, 2020. "Fiscal Deficits And Interest Rates In Brics Economies: Testing The Keynesian-Ricardian Opposition," JOURNAL OF LIFE ECONOMICS, Holistence Publications, vol. 7(2), pages .177-188, April.
    • Handle: RePEc:jle:journl:v:7:y:2020:i:2:p:177-188
    DOI: 10.15637/jlecon.7.012
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    More about this item

    Keywords

    fiscal deficits; interest rates; inflation; gross domestic product;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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