IDEAS home Printed from https://ideas.repec.org/a/beo/journl/v55y2010i184p58-70.html
   My bibliography  Save this article

Government Borrowing And The Longterm Interest Rate: Application Of An Extended Loanable Funds Model To The Slovak Republic

Author

Listed:
  • Yu Hsing

Abstract

Extending the open-economy loanable funds model, this paper finds that more government borrowing as a percent of GDP leads to a higher government bond yield, that a higher real money market rate, a higher expected inflation rate, a higher EU government bond yield, or a decrease in the Slovak nominal effective exchange rate would increase the Slovak government bond yield, and that the positive coefficient of the percent change in real GDP is insignificant at the 10% level. When the standard closedeconomy or open-economy loanable funds model is considered, except that the positive coefficient of the ratio of the net capital inflow to GDP is insignificant at the 10% level, other results are similar.

Suggested Citation

  • Yu Hsing, 2010. "Government Borrowing And The Longterm Interest Rate: Application Of An Extended Loanable Funds Model To The Slovak Republic," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 55(184), pages 58-70, January –.
    • Handle: RePEc:beo:journl:v:55:y:2010:i:184:p:58-70
    as

    Download full text from publisher

    File URL: http://www.ekof.bg.ac.rs/wp-content/uploads/2014/06/184-1-3.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Evans, Paul, 1988. "Are Government Bonds Net Wealth? Evidence for the United States," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 551-566, October.
    2. Hoelscher, Gregory, 1986. "New Evidence on Deficits and Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 1-17, February.
    3. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
    4. Stephen M. Miller & Frank S. Russek, 1991. "The Temporal Causality Between Fiscal Deficits And Interest Rates," Contemporary Economic Policy, Western Economic Association International, vol. 9(3), pages 12-23, July.
    5. James R. Barth & George Iden & Frank S. Russek, 1984. "Do Federal Deficits Really Matter?," Contemporary Economic Policy, Western Economic Association International, vol. 3(1), pages 79-95, September.
    6. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
    7. R.J. Cebula, 1997. "Government deficit, ex post real long-term interest rates and causality," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 50(202), pages 325-336.
    8. Kanhaya Gupta, 1989. "Budget deficits and interest rates in the United States," Public Choice, Springer, vol. 60(1), pages 87-92, January.
    9. Cebula, Richard & Koch, James, 1988. "An Empirical Note on Deficits, Interest Rates, and International Capital Flows," MPRA Paper 50165, University Library of Munich, Germany.
    10. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    11. Richard Cebula, 2003. "Budget deficits and real interest rates: Updated empirical evidence on causality," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 31(3), pages 255-265, September.
    12. Richard Cebula, 1997. "The impact of net international capital inflows on nominal long-term interest rates in France," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 25(2), pages 179-190, June.
    13. Bradley Ewing & Mark Yanochik, 1999. "Budget deficits and the term structure of interest rates in Italy," Applied Economics Letters, Taylor & Francis Journals, vol. 6(3), pages 199-201.
    14. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
    15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    16. Evans, Paul, 1987. "Do budget deficits raise nominal interest rates? : Evidence from six countries," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 281-300, September.
    17. Raynold, Prosper, 1994. "The impact of government deficits when credit markets are imperfect: Evidence from the interwar period," Journal of Macroeconomics, Elsevier, vol. 16(1), pages 55-76.
    18. De Santis, Roberto A. & Lührmann, Melanie, 2009. "On the determinants of net international portfolio flows: A global perspective," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 880-901, September.
    19. Harrison Hartman, 2007. "Deficit-related explanations for the US interest rate conundrum," Applied Economics Letters, Taylor & Francis Journals, vol. 14(4), pages 261-265.
    20. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
    21. Lloyd B. Thomas Jr. & Ali Abderrezak, 1988. "Long-Term Interest Rates: The Role of Expected Budget Deficits," Public Finance Review, , vol. 16(3), pages 341-356, July.
    22. Cebula, Richard, 1990. "A Note on Federal Budget Deficits and the Term Structure of Real Interest Rates in the United States," MPRA Paper 50238, University Library of Munich, Germany.
    23. Makin, John H, 1983. "Real Interest, Money Surprises, Anticipated Inflation and Fiscal Deficits," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 374-384, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Perveen, Asma & Munir, Kashif, 2017. "Impact of Total, Internal and External Government Debt on Interest Rate in Pakistan," MPRA Paper 83427, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yu Hsing, 2015. "Determinants of the Government Bond Yield in Spain: A Loanable Funds Model," IJFS, MDPI, vol. 3(3), pages 1-9, July.
    2. Zijun Wang, 2005. "A Note on Deficit, Implicit Debt, and Interest Rates," Southern Economic Journal, John Wiley & Sons, vol. 72(1), pages 186-196, July.
    3. André Pinho & Ricardo Barradas, 2021. "Determinants of the Portuguese government bond yields," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2375-2395, April.
    4. Bob Barnes, 2007. "A Cointegrating approach to budget deficits and long-term interest rates," Applied Economics, Taylor & Francis Journals, vol. 40(2), pages 127-133.
    5. Carlos David Ardila-Dueñas & Hernán Rincón-Castro, 2019. "¿Cómo y qué tanto impacta la deuda pública a las tasas de interés de mercado?," Borradores de Economia 1077, Banco de la Republica de Colombia.
    6. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
    7. Carlos Vieira, 2004. "The Deficit?Interest Rate Connection: an empirical assessment of the EU," Economics Working Papers 5_2004, University of Évora, Department of Economics (Portugal).
    8. Yu Hsing, 2010. "Does More Government Deficit Lead to a Higher Long-term Interest Rate? Application of an Extended Loanable Funds Model to Estonia," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 12(28), pages 650-659, June.
    9. Richard Cebula, 1997. "The impact of net international capital inflows on nominal long-term interest rates in France," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 25(2), pages 179-190, June.
    10. Yu Hsing, 2009. "Does more government deficit raise the interest rate? Application of extended loanable funds model to Slovenia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 27(2), pages 349-361.
    11. Daniel Choi & Mark Holmes, 2014. "Budget deficits and real interest rates: a regime-switching reflection on Ricardian Equivalence," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(1), pages 71-83, January.
    12. Cebula, Richard & Koch, James, 1988. "An Empirical Note on Deficits, Interest Rates, and International Capital Flows," MPRA Paper 50165, University Library of Munich, Germany.
    13. Mark Wheeler, 1999. "The macroeconomic impacts of government debt: An empirical analysis of the 1980s and 1990s," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(3), pages 273-284, September.
    14. Richard J. Cebula, 1989. "Federal Budget Deficits, International Capital Flows, and the Long-Term Nominal Rate of Interest in the United States," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 125(II), pages 157-164, June.
    15. Richard J. Cebula, 2014. "Impact of Federal Government Budget Deficits on the Longer Term Real Interest Rate in the U.S.: Evidence Using Annual and Quarterly Data, 1960-2013," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 60(1), pages 23-40.
    16. Darrat, Ali F & Glascock, John L, 1993. "On the Real Estate Market Efficiency," The Journal of Real Estate Finance and Economics, Springer, vol. 7(1), pages 55-72, July.
    17. Ardagna Silvia & Caselli Francesco & Lane Timothy, 2007. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-35, August.
    18. HARJIT K. Arora & PAMI Dua, 1993. "Budget Deficits, Domestic Investment, And Trade Deficits," Contemporary Economic Policy, Western Economic Association International, vol. 11(1), pages 29-44, January.
    19. repec:hal:spmain:info:hdl:2441/5221 is not listed on IDEAS
    20. David Alan Aschauer, 1990. "Is Government Spending Stimulative?," Contemporary Economic Policy, Western Economic Association International, vol. 8(4), pages 30-46, October.
    21. Richard J. Cebula, 1997. "A Note on the Impact of Structural Federal Budget Deficits on Commercial Bank Interest Rates, 1963-1994," Public Finance Review, , vol. 25(4), pages 442-450, July.

    More about this item

    Keywords

    Government borrowing; long-term interest rate; expected inflation; world interest rate; exchange rate;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:beo:journl:v:55:y:2010:i:184:p:58-70. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Goran Petrić (email available below). General contact details of provider: https://edirc.repec.org/data/efbeoyu.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.