Budget Deficit And Interest Rates

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Budget Deficits And Interest Rates

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Author : Ari Aisen
language : en
Publisher: International Monetary Fund
Release Date : 2008-02

Budget Deficits And Interest Rates written by Ari Aisen and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008-02 with Business & Economics categories.

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 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 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.

Budget Deficit And Interest Rates

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Author : José Nunes-Correia
language : en
Publisher:
Release Date : 1993

Budget Deficit And Interest Rates written by José Nunes-Correia and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993 with Budget deficits categories.

Recoge: 1.Introduction - 2.Theoretical considerations - 3.Trends in long-term interest rates and budget deficits (1970-1990) - 4.The model - 5.Expected inflation and econometric issues - 6.Empirical evidence - 7.Conclusions.

Deficits And Interest Rates

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Author :
language : en
Publisher:
Release Date : 1983

Deficits And Interest Rates written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1983 with Budget deficits categories.

Do Budget Deficits Push Up Interest Rates And Is This The Relevant Question

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Author :
language : en
Publisher:
Release Date : 2005

Do Budget Deficits Push Up Interest Rates And Is This The Relevant Question written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.

With mounting budget deficits, attention has focused on their economic effect, particularly whether budget deficits raise interest rates. Any explanation of the budget deficit-interest rate relationship must first come to grips with an indisputable fact: budget deficits consume real resources, and this -- rather than the behavior of interest rates -- is the more relevant public policy concern. When the government borrows from the public to finance public spending or tax cuts, the resources must come from somewhere. In mainstream theory, the resources come from the nation's pool of saving, which pushes up interest rates for simple supply and demand reasons. This "crowds out" private investment that was competing with government borrowing for the same pool of national saving. For this reason, economists often describe deficits as placing a burden on future generations. But other theories offer different explanations of where the resources come from that do not involve higher interest rates. In the capital mobility view, foreigners lend the United States the savings it needs to finance a deficit, leaving interest rates unaffected. But as foreign capital comes to the country, the dollar must appreciate. This causes U.S. exports and import-competing industries to become less competitive and the trade deficit to expand. In an alternative theory, popularly known as the Barro-Ricardo view, forward-looking, rational, infinitely-lived individuals see that a budget deficit would result in higher taxes or lower government spending in the future. Therefore, they reduce their consumption and save more today. This provides the government with the saving needed to finance its deficit, placing no upward pressure on interest rates. Empirical evidence that budget deficits do not affect interest rates does not prove that government budget deficits do not impose a burden, as demonstrated by the capital mobility and Barro-Ricardo views. In the capital mobility view, deficits crowd out the trade sector of the economy; in the Barro-Ricardo view, they crowd out current private consumption. And in both of these views, deficits no longer have any stimulative effect on the economy. Comparing changes in budget deficits to changes in interest rates is not a valid way to determine whether budget deficits affect interest rates. That is because there are many other factors that also affect interest rates. To determine the effect of budget deficits on interest rates, one must hold these other factors constant using statistical methods. Otherwise, the effect of budget deficits on interest rates could be misestimated or even reversed. Empirical evidence on a link between budget deficits and interest rates is mixed. There is not a consensus among economists on how to model the economy and what relevant variables should be included. Therefore, conclusions drawn from empirical evidence vary widely. More recent evidence tends to find a stronger, positive relationship between the two. In addition, 10 major forecasting models all predict that a budget deficit would increase interest rates. According to Gale and Orszag (2002), the models predict that a budget deficit equal to 1% of GDP would increase interest rates, with a range of 0.1-1 (mean=0.52) percentage points after one year and 0.05-2 (mean=0.99) percentage points after 10 years. This report will not be updated.

Anticipated Budget Deficits And The Term Structure Of Interest Rates

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Author : Daniel Valente Dantas
language : en
Publisher:
Release Date : 1984

Anticipated Budget Deficits And The Term Structure Of Interest Rates written by Daniel Valente Dantas and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1984 with Budget categories.

This paper investigates the implications of government deficits in an overlapping generations consumption loan model with longterm assets. The only asset in the economy is a real consol issued by the government and serviced by lumpsum taxes on the young. We explore here the time path of short and longterm interest rates following the announcement of a future,transitory budget deficit under two alternative assumptions. In one case the deficit arises from transitory government spending, in the other case from a transfer.We show that a deficit policy ultimately raises longterm interest rates and lowers consol prices. The exact shape of the path of short-term rates depends on the source of the deficit and on the saving response to interestrates. In general, though, the term structure will be v-shaped. The interest of the model resides in the fact that the prices of longterm assets link the current generations to future disturbances. Because future disturbances affect future interest rates they affect the current value of debt outstanding and hence equilibrium short-term rates. The exact manner in which the disturbances are transmitted to prior periods depends on the extent to which consumers substitute easily across time or, on the contrary, have a strong preference for consumption smoothing.

Budget Deficits And Rates Of Interest In The World Economy

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Author : Jacob A. Frenkel
language : en
Publisher:
Release Date : 1984

Budget Deficits And Rates Of Interest In The World Economy written by Jacob A. Frenkel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1984 with Deficit financing categories.

Interest Rates And Budget Deficits

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Author : Kanhaya L. Gupta
language : en
Publisher: Routledge
Release Date : 2005-10-11

Interest Rates And Budget Deficits written by Kanhaya L. Gupta and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005-10-11 with Business & Economics categories.

There is widespread belief that the high interest rates of the 1980s and 1990s in the developed world have been caused by high budget deficits. Yet, there is no conclusive evidence to support such a belief. This book systematically examines this and other questions relating to the behaviour of real interest rates in eleven developed countries. The results show that generalizations across the countries can be hazardous and strongly suggests that factors specific to individual countries are still of vital importance.

New Evidence On The Interest Rate Effects Of Budget Deficits And Debt

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Author : Thomas Laubach
language : en
Publisher:
Release Date : 2003

New Evidence On The Interest Rate Effects Of Budget Deficits And Debt written by Thomas Laubach and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with Budget deficits categories.

Fiscal Policy And Interest Rates In The European Union

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Author : Klaas Knot
language : en
Publisher: Edward Elgar Publishing
Release Date : 1996-01-01

Fiscal Policy And Interest Rates In The European Union written by Klaas Knot and has been published by Edward Elgar Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 1996-01-01 with Business & Economics categories.

This is an extensive study concerned with the potential effects of fiscal policy on financial markets in the EU. It takes into account the gradual liberalization of capital movements through Western Europe & the framework of the European Monetary System.

Budget Deficit And Interest Rates

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Author : Loukas Stemitsiotis
language : es
Publisher:
Release Date : 1993

Budget Deficit And Interest Rates written by Loukas Stemitsiotis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993 with categories.