Impact of Federal Government Budget Deficits on the Longer-term Real Interest Rate in the U.S.: Evidence Using Annual and Quarterly Data, 1960-2013
Using over a half century of data, this empirical study adopts a simple loanable funds model to investigate the impact of federal budget deficits in the U.S. on the ex post real interest rate yield on ten year U.S. Treasury notes. Three estimates using annual data for three different time periods (1960-2013, 1971-2013, 1980-2013) are provided; in addition, as a de facto modest test of robustness, one additional estimate using quarterly data for the period 1960.1 through 2013.4 is also provided. In each of the four empirical analyses, an autoregressive 2SLS estimate finds that the ex post real interest rate yield on ten year U.S. Treasury notes is an increasing function of the ex post real interest rate yield on Moody’s Baa-rated corporate bonds, the ex post real interest rate yield on three year Treasury notes, and the ex post real interest rate yield on high grade municipal bonds. This exploratory analysis also finds consistent evidence that federal budget deficit (relative to the GDP level) exercised a positive and statistically significant impact on the ex post real interest rate yield on ten year Treasury notes
|Date of creation:||24 Mar 2014|
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- Cebula, Richard, 1996. "An Empirical Note on the Impact of the Federal Budget Deficit on Ex Ante Real Long-Term, Interest Rates, 1973-1995," MPRA Paper 51414, University Library of Munich, Germany.
- Cebula, Richard, 1997.
"An Empirical Analysis of the Impact of Federal Budget Deficits on Long-term Nominal Interest Rate Yields, 1973.2-1995.4, Using Alternative Expected Inflation Measures,"
50976, University Library of Munich, Germany.
- Cebula, Richard J., 1998. "An empirical analysis of the impact of federal budget deficits on long-term nominal interest rate yields, 1973.2-1995.4, using alternative expected inflation measures," Review of Financial Economics, Elsevier, vol. 7(1), pages 55-64.
- Richard J. Cebula, 2005. "Recent empirical evidence on the impact of the primary budget deficit on nominal longer term treasury note interest rate yields," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 7(1), pages 47-58.
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- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
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"Government deficit, ex post real long-term interest rates and causality,"
BNL Quarterly Review,
Banca Nazionale del Lavoro, vol. 50(202), pages 325-336.
- R.J. Cebula, 1997. "Government deficit, ex post real long-term interest rates and causality," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 50(202), pages 325-336.
- James R. Barth & George Iden & Frank S. Russek, 1984. "Do Federal Deficits Really Matter?," Contemporary Economic Policy, Western Economic Association International, vol. 3(1), pages 79-95, 09.
- Richard Cebula & Pablo Cuellar, 2010. "Recent evidence on the impact of government budget deficits on the ex ante real interest rate yield on Moody’s Baa-rated corporate bonds," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(3), pages 301-307, July.
- Hoelscher, Gregory, 1986. "New Evidence on Deficits and Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 1-17, February.
- Cebula, Richard & Foley, Maggie, 2012. "Recent Evidence on the Impact of Federal Government Budget Deficits on the Nominal Long Term Mortgage Interest Rate in the U.S," MPRA Paper 53691, University Library of Munich, Germany.
- Bradley Ewing & Mark Yanochik, 1999. "Budget deficits and the term structure of interest rates in Italy," Applied Economics Letters, Taylor & Francis Journals, vol. 6(3), pages 199-201.
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