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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

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. Published in: Review of Financial Economics , Vol. 7, No. 1 (17 April 1998): pp. 55-64.

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Abstract

Using two alternative measures of expected inflation, this study investigates the impact of federal budget deficits on nominal long-term interest rate yields for the 1973.2-1995.4 period. Based on an open­ economy loanable funds framework, four instrumental variable esti­mates in first differences are provided. In all cases, the budget deficit is found to elevate the nominal long-term interest rate.

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