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The Effects of Government Budget Deficits on the Interest Rates: A Case Study of a Small Open Economy

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Abstract

This paper investigates the relationship between interest rates and government budget deficits in Pakistan over the period from 1970: I to 1991: IV. The results reveal that government budget deficits do not exert significant influence on nominal or real interest rates. These findings do not lend support to the « Crowding-Out » hypothesis winch suggests an inverse relationship between government budget deficits and rate of interest.

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  • Ahmad, Mushtaq, 1994. "The Effects of Government Budget Deficits on the Interest Rates: A Case Study of a Small Open Economy," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 47(1), pages 1-6.
    • Handle: RePEc:ris:ecoint:0424
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    Cited by:

    1. Chakraborty, Lekha S., 2006. "Fiscal deficit, capital formation, and crowding out: Evidence from India," Working Papers 06/43, National Institute of Public Finance and Policy.
    2. Kalim Hyder & Qazi Masood Ahmed, 2004. "Why Private Investment In Pakistan Has Collapsed And How It Can Be Restored," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 9(1), pages 107-125, Jan-June.
    3. Shoora B. Paudyal, 2013. "Do Budget Deficits Raise Interest Rates in Nepal?," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 25(1), pages 51-66, April.
    4. Kalim Hyder, 2001. "Crowding-out Hypothesis in a Vector Error Correction Framework: A Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 633-650.
    5. Noman Saeed & Kalim Hyder & Asghar Ali, 2006. "The Impact of Public Investment on Private Investment: A Disaggregated Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 639-663.
    6. Lekha S. Chakraborty, 2012. "Interest Rate Determination in India: Empirical Evidence on Fiscal Deficit--Interest Rate Linkages and Financial Crowding Out," Economics Working Paper Archive wp_744, Levy Economics Institute.
    7. Shoora B. Paudyal, 2013. "Do Budget Deficits Raise Interest Rates in Nepal?," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 25(1), pages 51-66, April.
    8. Asamoah, Lawrence Adu, 2016. "Fiscal Policy and Lending Rate Nexus in Ghana," MPRA Paper 80209, University Library of Munich, Germany.

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