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Are Government Bonds Net Wealth? Evidence for the United States

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  • Evans, Paul

Abstract

This paper investigates whether government bonds are viewed as net wealth. If they are, the nominal interest rate in steady-state equilibrium should be an increasing function of the government debt and of government spending. Using forward interest rates realized during World War II, this paper finds no evidence of such a relationship. These data afford an especially powerful test because the federal debt rose from 29 to 106 percent of trend output during the war. This enormous increase in government debt actually appears to have reduced forward interest rates by a statistically-significant, but small, amount. Copyright 1988 by Oxford University Press.

Suggested Citation

  • 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.
    • Handle: RePEc:oup:ecinqu:v:26:y:1988:i:4:p:551-66
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    Cited by:

    1. Normandin, Michel, 1999. "Budget deficit persistence and the twin deficits hypothesis," Journal of International Economics, Elsevier, vol. 49(1), pages 171-193, October.
    2. 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.
    3. Berument, Hakan, 1998. "Central Bank Independence and Financing Government Spending," Journal of Macroeconomics, Elsevier, vol. 20(1), pages 133-151, January.
    4. Krishanu Pradhan, 2016. "Ricardian Approach to Fiscal Sustainability in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 10(4), pages 499-529, November.
    5. 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 –.
    6. 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.
    7. Tito B.S. Moreira & Geraldo Silva Souza, 2009. "A Nominal Theory of the Nominal Rate of Interest and the Price Level: Some Empirical Evidence," Economics Bulletin, AccessEcon, vol. 29(4), pages 3120-3125.
    8. 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.
    9. Yu Hsing, 2015. "Determinants of the Government Bond Yield in Spain: A Loanable Funds Model," IJFS, MDPI, vol. 3(3), pages 1-9, July.

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