Budget deficits and interest rates: a fresh perspective

Ari Aisen and David Hauner

Applied Economics, 2013, vol. 45, issue 17, 2501-2510

Abstract: We extend the literature on budget deficits and interest rates in three ways: we examine both advanced and emerging economies and for the first time a large emerging market panel; explore interactions to explain some of the heterogeneity in the literature; and apply system Generalized Method of Moments (GMM). There is overall a highly significant positive effect of budget deficits on interest rates, but the effect depends on interaction terms and is only significant under one of the several conditions: deficits are high, mostly domestically financed, or interact with high domestic debt; financial openness is low; interest rates are liberalized; or financial depth is low.

Date: 2013
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Working Paper: Budget Deficits and Interest Rates: A Fresh Perspective (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:45:y:2013:i:17:p:2501-2510

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DOI: 10.1080/00036846.2012.667557

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