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Budget Deficits And Interest Rates: The Us Evidence Since 1946

Author

Listed:
  • SHAKIL QUAYES

    (School of Global Management and Leadership, Arizona State University, PO Box 37100, Phoenix, Arizona, 85069-7100, USA)

  • A. M. M. JAMAL

    (Department of Management, Southeastern Louisiana University, Hammond, LA 70402, USA)

Abstract

Many economists believe that federal government's budget deficits result in higher interest rates. This increase in interest rates can stifle private investment and impede the real rate of economic growth for the economy. This paper examines the potential impact of federal budget deficits on long-term interest rates for corporate bonds. The study is based on post-war annual US data, and employs a standard demand-supply model. The empirical results in our study provide evidence that the increasing budget deficits lead to higher interest rate for corporate bonds. In this regard, our study supports arguments for the crowding out theory.

Suggested Citation

  • Shakil Quayes & A. M. M. Jamal, 2007. "Budget Deficits And Interest Rates: The Us Evidence Since 1946," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 52(02), pages 191-200.
    • Handle: RePEc:wsi:serxxx:v:52:y:2007:i:02:n:s0217590807002646
    DOI: 10.1142/S0217590807002646
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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.

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    Keywords

    Budget deficit; interest rate;

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