 Federal Deficits and the Real Rate of Interest in the United States: A NoteMPRA Paper from University Library of Munich, Germany Abstract: This brief Note provides strong empirical evidence that federal government deficits can indeed have a positive and significant impact upon short term interest rates; the findings in this paper thereby establish another mechanism for the transmission of crowding out. This study differs from most other studies in the adoption of two particular procedures. First, unlike most (although not all) other related studies, the rate of interest is expressed as a real rate; this is done in simple fashion by subtracting the inflation rate (of the GNP deflator) from the nominal rate of interest (taken to be the 3 month T-bill rate). Second, also unlike most (although not all) other related studies, the deficit is expressed in real terms and then divided by the real GNP level; expressing the deficit in this ratio form enables us to judge the deficit relative to the size of the economy which must finance it. No previous related study to date has adopted both of these procedures, and most studies of this topic have adopted neither procedure. Keywords: interest rate determinants; financial markets; budget deficits; crowding out (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:51626 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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