Budgetary spillovers and long-term interest rates

Peter Claeys

Chapter 3 in Economic Spillovers, Structural Reforms and Policy Coordination in the Euro Area, 2008, pp 55-106 from Springer

Abstract: Abstract The effect of fiscal expansions on interest rates has commanded enormous theoretical interest, but the hypothesis of crowding out has received only some — albeit not very robust — empirical endorsement. Most economists would nevertheless agree with the position that consolidating public finances reduces pressure on long-term interest rates and will be conducive to economic growth in the long run by stimulating private investment (Gale and Orszag, 2003). The crowding out premise is also an important motivation for the consolidation of public finances, as is evident from the policies advocated by both the European Commission and the European Central Bank.

Keywords: Interest Rate; Fiscal Policy; Euro Area; Public Debt; Debt Ratio (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1007/978-3-7908-1970-0_3

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