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Fiscal policy, trigger points and interest rates: Additional evidence from the U.S

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  • Gerhard Reitschuler
  • Rupert Sendlhofer

Abstract

We empirically investigate whether the relationship between interest rates and public deficits/debt may be nonlinear for the U.S. Using threshold estimation, we find evidence of level-dependent effects on interest rates, implying a significant effect of projected deficits and debt in the U.S. only if the deficit surpasses approximately 5% of GDP.

Suggested Citation

  • Gerhard Reitschuler & Rupert Sendlhofer, 2011. "Fiscal policy, trigger points and interest rates: Additional evidence from the U.S," Working Papers 2011-23, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2011-23
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    More about this item

    Keywords

    Public debt; public deficit; long-term interest rates; nonlinearity; threshold models; Domar model;
    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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