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Fiscal Policy and the term Structure of Interest Rates: An Intertemporal Optimizing Analysis

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  • Fisher, W.H.
  • Turnovsky, S.J.

Abstract

The effects of government expenditure on the dynamic evolution of the term structure of interest rates are analyzed in an infinite horizon intertemporal optimizing macroeconomic framework. Three types of disturbances are discussed: unanticipated and anticipated permanent increases, and a temporary decrease. In the case of anticipated future and temporary disturbances, the lead time in the former, and the duration in the latter, are critical determinants of the dynamics. For a very temporary shock, the short-term and long-term rates will diverge in the short run. While most of the analysis focuses on infinitesimally short, and infinitely long bonds, the dynamics of the entire yield curve are also considered. Copyright 1992 by Ohio State University Press.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Fisher, W.H. & Turnovsky, S.J., 1991. "Fiscal Policy and the term Structure of Interest Rates: An Intertemporal Optimizing Analysis," Discussion Papers in Economics at the University of Washington 91-20, Department of Economics at the University of Washington.
  • Handle: RePEc:fth:washer:91-20
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    References listed on IDEAS

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    1. Matsuyama, Kiminori, 1987. "Current account dynamics in a finite horizon model," Journal of International Economics, Elsevier, vol. 23(3-4), pages 299-313, November.
    2. Sen, Partha & Turnovsky, Stephen J, 1989. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 811-831, November.
    3. Brock, Philip L., 1988. "Investment, the current account, and the relative price of non-traded goods in a small open economy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 235-253, May.
    4. J. P. Gould, 1968. "Adjustment Costs in the Theory of Investment of the Firm," Review of Economic Studies, Oxford University Press, vol. 35(1), pages 47-55.
    5. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321-321.
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    Citations

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    Cited by:

    1. Chang, Wen-ya, 1999. "Government spending, endogenous labor, and capital accumulation," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1225-1242, August.
    2. Koutsobinas, Theodore, 2011. "Animal spirits, liquidity-preference and Keynesian behavioural macroeconomics: An intertemporal framework," MPRA Paper 43027, University Library of Munich, Germany.
    3. repec:kap:iaecre:v:18:y:2012:i:2:p:177-185 is not listed on IDEAS
    4. Agenor, Pierre-Richard, 1995. "Monetary shocks and exchange rate dynamics with informal currency markets," International Review of Economics & Finance, Elsevier, vol. 4(3), pages 211-226.
    5. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
    6. Stefan F. Schubert & Stephen J. Turnovsky, 2006. "Anticipated Fiscal Policy Changes and Goods Market Adjustments," German Economic Review, Verein für Socialpolitik, vol. 7, pages 135-161, May.
    7. Mark A. Wynne, 1993. "The output effects of government consumption: a note," Working Papers 9320, Federal Reserve Bank of Dallas.
    8. X. Wang & Bill Yang, 2012. "Yield Curve Inversion and the Incidence of Recession: A Dynamic IS-LM Model with Term Structure of Interest Rates," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(2), pages 177-185, May.
    9. Thierry Warin & Kenneth Donahue, 2006. "The Stability and Growth Pact: A European Answer to the Political Budget Cycle?," Middlebury College Working Paper Series 0606, Middlebury College, Department of Economics.
    10. Shigeto Kitano, 2009. "Nominal debt and inflation stabilization," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(4), pages 409-422.

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