Fiscal Policy and Interest Rates∗

Anonymous

National Institute Economic Review, 1984, vol. 109, 38-44

Abstract: The Treasury Bill rate is regarded as an exogenous policy instrument in the National Institute's forecasting model. Other interest rates in the model are linked to this rate by term-structure equations. This approach, while justifiable for forecasting, has limitations when the model is used for policy simulations since it ignores the responses of interest rates to changes in economic conditions. This note shows how the properties of the model are affected when interest rates are treated as endogenous.

Date: 1984
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