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Current and Anticipated Deficits, Interest Rates and Economic Activity

  • Olivier J. Blanchard

There is widespread feeling that current deficits, in Europe and the U.S.,may hurt rather than help the recovery. This paper examines some of the issues involved, through a sequence of three models.The first model focuses on sustainability and characterizes its determinants. It suggests that the issue of sustainability may indeed ber elevant in some countries.The second model focuses on the effects of fiscal policy on real interestrates, and in particular on the relative importance of the level of deficits andthe level of debt in determining interest rates.The third model focuses on the effects of fiscal policy on the speed of the recovery. It shows how a sharply increasing fiscal expansion might be initially contractionary rather than expansionary.

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File URL: http://www.nber.org/papers/w1265.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1265.

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Date of creation: Jan 1984
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Publication status: published as Blanchard, Olivier J. "Current and Anticipated Deficits, Interest Rates and Economic Activity." European Economic Review, Vol. 25, (1984), pp. 7-27. North-Holland.
Handle: RePEc:nbr:nberwo:1265
Note: EFG
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