Government debt, deficits and interest rates 1870 - 201

Ronald Smith

No 2002, BCAM Working Papers from Birkbeck Centre for Applied Macroeconomics

Abstract: This paper examines the effect of changes in the public debt-GDP ratio on long, 10 year, interest rates in a panel of 17 countries over the period 1870-2016 controlling for other variables, in particular the world interest rate. Over this long period one can argue that most of the big changes in public debt were the product of factors largely exogenous to national interest rate determination, such as war, depression or financial crisis. The issue is of current relevance since the covid-19 pandemic has caused large increases in the ratio of public debt to GDP in many countries. The estimates suggest that it is the change in debt, rather than the level of debt or the deficit, that matters for long interest rates. World interest rates have long and short run effects on interest rates which are very well determined and close to one. Current inflation has a small but significant effect.

Keywords: Public debt; Government deÖcits; interest rates; world interest rates; macro-history. (search for similar items in EconPapers)
JEL-codes: C23 E43 F36 H63 (search for similar items in EconPapers)
Date: 2020-09
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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