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On Budget Deficits And Interest Rates: Another Look At The Evidence

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  • Ali Darrat

Abstract

This paper revisits the relationship between government budget deficits and interest rates in Greece. Contrary to the results of Vamvoukas (1997), the evidence I deduce from system estimations of error-correction models consistently denies any causal impact of the deficits on interest rates. Indeed, the high correlation observed between the two variables appears to the outcome of interest rates causing purposeful changes in the stance of fiscal policy. These findings stand up to numerous sensitivity tests and provide further support to the overwhelming evidence against the crowding-out hypothesis, [E6, H6]

Suggested Citation

  • Ali Darrat, 2002. "On Budget Deficits And Interest Rates: Another Look At The Evidence," International Economic Journal, Taylor & Francis Journals, vol. 16(2), pages 19-29.
    • Handle: RePEc:taf:intecj:v:16:y:2002:i:2:p:19-29
    DOI: 10.1080/10168730200000010
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    References listed on IDEAS

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    1. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
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    Cited by:

    1. Harrison Hartman, 2007. "Deficit-related explanations for the US interest rate conundrum," Applied Economics Letters, Taylor & Francis Journals, vol. 14(4), pages 261-265.
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    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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