The Government Debt and the Long-Term Interest Rate: Application of the Loanable Funds Model to Greece

Yu Hsing
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Yu Hsing: Southeastern Louisiana University, Postal: Department of Management and Business Administration,, College of Business, Southeastern Louisiana University, Hammond, LA 70402 USA

Journal of Economic Integration, 2010, vol. 25, 722-733

Abstract:

This paper extends the open-economy loanable funds model to Greece and finds that a higher government debt/GDP ratio, a higher real short-term rate, a higher percent change in real GDP, a higher expected inflation rate, a higher EU government bond yield, or a higher nominal effective exchange rate increases the Greek government bond yield. In the conventional closed-economy loanable funds model, similar results are found, but the explanatory power is lower. In the conventional open-economy loanable funds model, the percent change in real GDP and the ratio of the net capital inflow to GDP have insignificant coefficients.

Keywords: Government Debt; Long-term Interest Rate; Expected Inflation; World Interest Rate; Exchange Rate; Loanable Funds Model (search for similar items in EconPapers)
JEL-codes: E43 E62 O52 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0523

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