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The Impact of Fiscal Deficit on Long-term Nominal Interest Rate in Nepal

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  • Rajendra Pandit

    (Nepal Rastra Bank)

Abstract

Growth of debt stock, changes in the debt composition, ownership structure of government debt and movement of interest rate on debt have been observed since the very beginning in Nepal. Public debt issues have been more and more market oriented and secondary market activities for short-term securities have expanded in recent years. Presently, the amount of debt service payment which exerts pressure on government budget constitutes more than one fourth of the total government expenditure. The theoretical prediction about the relationship between interest rate and government debt is still a matter of controversy. Empirical evidence of other countries on the relationship between interest rate and public debt has become inconclusive. This paper examines the relationship between long-term nominal interest rate and budget deficit variables in Nepal. The study finds the evidence that there exists positive but insignificant relationship between long-term nominal interest rate of government securities and budget deficit variables.

Suggested Citation

  • Rajendra Pandit, 2005. "The Impact of Fiscal Deficit on Long-term Nominal Interest Rate in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 17, pages 113-133, April.
  • Handle: RePEc:nrb:journl:v:17:y:2005:p:113-133
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    References listed on IDEAS

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    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. Dwyer, Gerald P, Jr, 1985. "Federal Deficits, Interest Rates, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 655-681, November.
    6. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    7. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    8. Silber, William L, 1970. "Fiscal Policy in IS-LM Analysis: A Correction," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 2(4), pages 461-472, November.
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    Cited by:

    1. Oseni O. Isiaq & Adesoye A. Bolaji, 2016. "Fiscal Policy and Term Structure of Interest Rate in Nigeria," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 12(2), pages 70-83, April.
    2. repec:dug:journl:y:2016:i:2:p:70-83 is not listed on IDEAS
    3. Perveen, Asma & Munir, Kashif, 2017. "Impact of Total, Internal and External Government Debt on Interest Rate in Pakistan," MPRA Paper 83427, University Library of Munich, Germany.

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