Impact of the Federal Budget Deficit on the Nominal Interest Rate Yield on New 30-Year Fixed-Rate Home Mortgages: Recent Evidence

Richard Cebula ()

Journal of Housing Research, 2008, vol. 17, issue 2, 155-164

Abstract: This study provides recent evidence on the impact of the budget deficit on the nominal interest rate yield on new 30-year fixed-rate home mortgages. Using quarterly data for the period 1974.1–2007.4, as well as two sub-periods thereof, estimations reveal that the nominal interest rate yield on new 30-year fixed-rate home mortgages was an increasing function of expected inflation and the ex ante real 3-month Treasury bill yield, while being a decreasing function of the ratio of the M2 money supply to the GDP and the ratio of net international capital inflows to the GDP. Finally, the estimations reveal that the budget deficit, expressed as a percentage of GDP, exercised a positive and statistically significant impact on the mortgage yield.

Date: 2008
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DOI: 10.1080/10835547.2008.12091989

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