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The Impact of Debt and Deficits on Long Term Interest Rates in the US

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  • Furceri, Davide
  • Goncalves, Carlos
  • Li, Hongchi

Abstract

We present new evidence on the impact of fiscal variables on long-term interest rates and term premia in the United States. To alleviate endogeneity problems, we follow the seminal methodology by Laubach (2009) and resort to long-term projections of interest rates and fiscal variables. After incorporating an additional 20 years of data into our sample, the estimated effects of debt and deficits on interest rates show little change from Laubach’s findings. However, we show that the link between long-term rates and fiscal variables is not stable over time. It was close to zero during the years of relative fiscal prudence around the turn of the century and it has been increasing since fiscal positions have started to deteriorate markedly

Suggested Citation

  • Furceri, Davide & Goncalves, Carlos & Li, Hongchi, 2025. "The Impact of Debt and Deficits on Long Term Interest Rates in the US," CEPR Discussion Papers 20480, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20480
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    File URL: https://cepr.org/publications/DP20480
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    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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