An exploratory inquiry into the impact of budget deficits on the nominal interest rate yield on Moody's Aaa-rated corporate bonds, 1973--2012

Richard Cebula ()

Applied Economics Letters, 2013, vol. 20, issue 16, 1497-1500

Abstract: This exploratory empirical article provides recent evidence on the impact of the US federal budget deficit on the nominal interest rate yield on Moody's Aaa-rated long-term corporate bonds. The study is couched within a loanable funds model that includes an ex ante real short-term real interest rate yield, the monetary base, expected inflation and the change in per capita real GDP. Using data for the period 1973--2012, which time frame includes 'quantitative easing' monetary policies in the US, autoregressive two-stage least squares estimation reveals the preliminary finding that the federal budget deficit, expressed as a per cent of GDP, has exercised a positive and statistically significant impact on the nominal interest rate yield on Moody's Aaa-rated long-term corporate bonds, even after allowing for 'quantifying easing' and other factors.

Date: 2013
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DOI: 10.1080/13504851.2013.826869

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