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The Government Debt and the Long-Term Interest Rate: Application of the Loanable Funds Model to Greece


  • Hsing, Yu

    () (Southeastern Louisiana University)


This paper extends the open-economy loanable funds model to Greece and finds that a higher government debt/GDP ratio, a higher real short-term rate, a higher percent change in real GDP, a higher expected inflation rate, a higher EU government bond yield, or a higher nominal effective exchange rate increases the Greek government bond yield. In the conventional closed-economy loanable funds model, similar results are found, but the explanatory power is lower. In the conventional open-economy loanable funds model, the percent change in real GDP and the ratio of the net capital inflow to GDP have insignificant coefficients.

Suggested Citation

  • Hsing, Yu, 2010. "The Government Debt and the Long-Term Interest Rate: Application of the Loanable Funds Model to Greece," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 722-733.
  • Handle: RePEc:ris:integr:0523

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    Cited by:

    1. 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.

    More about this item


    Government Debt; Long-term Interest Rate; Expected Inflation; World Interest Rate; Exchange Rate; Loanable Funds Model;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe


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