An Empirical Analysis for the U.S. of the Effects of Government Budget Deficits on the Ex Ante Real Interest Rate Yields on Thirty-Year and Twenty-Year Treasury Bonds

Richard Cebula () and Maggie Foley
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Maggie Foley: Jacksonville University, Davis College of Business, Jacksonville, Florida, U.S.A.

Economia Internazionale / International Economics, 2019, vol. 72, issue 2, 231-252

Abstract: This study empirically investigates the impact of federal government budget deficits on the ex ante real interest rate yield on thirty-year and twenty-year U.S. Treasury bonds. After allowing for the exchange rate and a variety of other control variables, it is found that autoregressive two stage least squares estimations for the post-Bretton Woods era reveal that the ex ante real interest rate yields on both of these bonds have been an increasing function of the federal budget deficit. Accordingly, since long-term U.S. Treasury bond issues compete directly with household bond issues (such as home mortgages) as well as corporate bond issues in the financial marketplace, legislators and other policy-makers should circumspect about the potential implications of actions that increase the magnitude of budget deficits. This is because higher budget deficits are very likely to elevate longer-term ex ante real interest rates affecting household purchases of durable goods, such as housing and business investment in new plant and equipment and technology and hence are likely to adversely influence long-term macro-economic growth through crowding-out effects. Un’analisi empirica degli effetti del deficit USA sui tassi di interesse reali ex-ante sui bond del Tesoro a 20 e a 30 anni Questo lavoro analizza l’impatto del deficit di bilancio federale sui tassi di interesse reale ex-ante sui bond del tesoro a 20 e a 30 anni. Dopo aver preso in considerazione il tasso di cambio ed altre variabili di controllo è emerso che stime quadratiche minime autoregressive a due livelli per l’era post-Bretton Woods rivelano che il rendimento reale ex-ante su entrambi i tipi di bond sono una funzione crescente del deficit di bilancio federale. Di conseguenza, poiché l’emissione di bond del tesoro statunitense a lungo termine è in diretta competizione con l’emissione di bond domestici (come i mutui immobiliari) o di corporate bond del mercato finanziario, il legislatore e il governo dovrebbero riflettere sulle potenziali implicazioni delle politiche che fanno aumentare il deficit di bilancio. Questo perché un deficit maggiore può verosimilmente far crescere il tasso di interesse reale ex ante su un periodo più lungo, influenzando così la domanda interna di beni durevoli come gli immobili e gli investimenti in nuovi impianti e tecnologie e di conseguenza influenzare negativamente la crescita macro-economica di lungo periodo tramite effetti spiazzamento.

Keywords: Budget Deficits; Ex Ante Real Interest Rate Yields; Thirty-Year Treasury Bonds; Twenty-Year Treasury Bonds; Monetary Policy; Crowding Out (search for similar items in EconPapers)
JEL-codes: E43 E62 H62 (search for similar items in EconPapers)
Date: 2019
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