Deficits and Real Interest Rates: A Note Extending the Hoelscher Model

Cebula, Richard and Scott, Gerald (1990): Deficits and Real Interest Rates: A Note Extending the Hoelscher Model. Published in: The Indian Journal of Economics , Vol. 71, No. 4 (30 April 1991): pp. 519-522.

Abstract

This study adopts a loanable funds model to investigate the impact of budget deficits in the U.S. on long term real interest rates. The study investigates both ex post real 10 year Treasury note yields and ex post real 20 year Treasury bond yields. The study period runs from 1955 through 1987, using quarterly data. Two stage least squares estimations reveal that budget deficits did indeed raise these ex post real long term interest rate yields.

• Item Type: MPRA Paper
• Language: English
• Keywords: budget deficits; ex post real long term interest rates; two stage least squares estimations
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus

References

Barth, J.R.,Iden, G.,Russek, F.S. (1984). Do federal deficits really matter? Contemporary Policy Issues, 3: 79-95.

Barth, J.R.,Iden, G.,Russek, F.S. (1985). Federal borrowing and short term interest rates: Comment. Southern Economic Journal 52: 554-559.

Cebula, R.J. (1985). The crowding out effect of fiscal policy. Kyklos 38: 435-438.

Hoelscher, G. (1983). Federal borrowing and short term interest rates. Southern Economic Journal 50: 319-333.

Hoelscher, G. (1986). New evidence on deficits and interest rates. Journal of Money, Credit and Banking 18: 1-17.

Holloway, T.M. (1986). The cyclically adjusted federal budget and federal debt: Revised and updated estimates. Survey of Current Business 66: 11-17