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New Evidence on the Interest Rate Effects of Budget Deficits and Debt
Open accessAbstract
Estimating the effects of government debt and deficits on Treasury yields is complicated from the effects of the business cycle, and associated monetary policy actions, on debt, deficits, and interest rates, this paper studies the relationship between long-horizon expected government debt and deficits, measured by CBO and OMB projections, and expected future long-term interest rates. The estimated effects of government debt and deficits on interest rates are statistically and economically significant: a one percentage point increase in the projected deficit-to-GDP ratio is estimated to raise long-term interest rates by roughly 25 basis points. Under plausible assumptions these estimates are shown to be consistent with predictions of the neoclassical growth model. JEL classification: E6, H6.
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Cited by
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Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?
CHUNG, H., LAFORTE, J., REIFSCHNEIDER, D., & WILLIAMS, J. C. (2012) · Journal of Money, Credit and Banking · doi:10.1111/j.1538-4616.2011.00478.x · Cited by 278
Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries
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Metadata
- Authors
- Laubach, T.
- Venue
- Journal of the European Economic Association
- Publisher
- Oxford University Press (OUP)
- Published
- 2009-06
- Volume
- 7
- Issue
- 4
- Pages
- 858-885
- ISSN
- 1542-4766 (ISSN-L)
- 1542-4774
- OpenAlex
- W2163287725
- Cited by
- 697
- References
- 0
- FWCI
- 135.36
- Type
- journal article
- Language
- en
- Open access
- green
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- Laubach, T. (2009). New Evidence on the Interest Rate Effects of Budget Deficits and Debt. Journal of the European Economic Association. https://doi.org/10.1162/jeea.2009.7.4.858
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