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Rising public debt and the short-term interest rates: Is there a link?

Author

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  • Leon Podkaminer

    (Narodowy Bank Polski)

Abstract

ARDL-Bounds models for the European countries, the USA and Japan suggest that increasing public debts may have been of minor importance as determinants of short-term real interest rates. Moreover, the effects in question appear to be negative almost everywhere. Rising public debts seem to have lowered the short-term interest rates, if only rather marginally in most cases. The lingering opinion that fiscal deficits drive up interest rates finds no convincing confirmation in the data.

Suggested Citation

  • Leon Podkaminer, 2022. "Rising public debt and the short-term interest rates: Is there a link?," Bank i Kredyt, Narodowy Bank Polski, vol. 53(3), pages 325-340.
    • Handle: RePEc:nbp:nbpbik:v:53:y:2022:i:3:p:325-340
    as

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    File URL: https://bankikredyt.nbp.pl/content/2022/03/bik_03_2022_03.pdf
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    References listed on IDEAS

    as
    1. Thomas Herndon & Michael Ash & Robert Pollin, 2014. "Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(2), pages 257-279.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    3. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122, National Bureau of Economic Research, Inc.
    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    5. Leanne Ussher, 1998. "Do Budget Deficits Raise Interest Rates? A Survey of the Empirical Literature," Working Papers 0005 Classification- JEL:, Department of Economics, Queens College of the City University of New York.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    crowding out; public debt; short-term interest rates; ARDL-B;
    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
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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