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Budget Deficits and Interest Rates in a Small Open

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  • George Vamvoukas

Abstract

Additional empirical research on the links between budget deficits and interest rates Is highly relevant for the ongoing discussion about the validity of the Keynesian Proposition and the Ricardian equivalence. This study using data from a small open Economy investigates the empirical framework of both paradigms by applying SURE Technique and impulse response functions. SURE results lead to the indication that a bidirectional pattern of causality might exist between budget deficits and interest rates. Impulse response functions show that deficits and interest rates follow a joint feedback Causality. This result is consistent with the Keynesian proposition, because changes in Interest rates are a response to positive movements in budget deficits. [E43, H62]

Suggested Citation

  • George Vamvoukas, 2002. "Budget Deficits and Interest Rates in a Small Open," International Economic Journal, Taylor & Francis Journals, vol. 16(2), pages 31-36.
  • Handle: RePEc:taf:intecj:v:16:y:2002:i:2:p:31-36
    DOI: 10.1080/10168730200000011
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    References listed on IDEAS

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    1. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-190, March.
    2. George Vamvoukas, 1999. "The twin deficits phenomenon: evidence from Greece," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1093-1100.
    3. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    4. Omer Ozcicek & W. DOUGLAS McMILLIN, 1999. "Lag length selection in vector autoregressive models: symmetric and asymmetric lags," Applied Economics, Taylor & Francis Journals, vol. 31(4), pages 517-524.
    5. Vamvoukas, George, 1997. "Budget Expenditures and Revenues: An Application of Error-Correction Modelling," Public Finance = Finances publiques, , vol. 52(1), pages 125-138.
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