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An Empirical Note on Deficits, Interest Rates, and International Capital Flows

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  • Cebula, Richard
  • Koch, James

Abstract

The purpose of this study is to examine the impact of federal budget deficits upon the nominal long term rate of interest in the United States when, in addition to the usual potential interest-rate-influencing factors such as monetary policy, short term interest rates, the budget deficit, and inflationary expectations, net international capital flows into the United States have been accounted for. Using three alternative measures of long term interest rate yields, the 2SLS estimations provided in this note provide strong empirical evidence that federal budget deficits in the United States exercise a positive and statistically significant influence over longer-term rates of interest despite the influence of net capital inflows.

Suggested Citation

  • Cebula, Richard & Koch, James, 1988. "An Empirical Note on Deficits, Interest Rates, and International Capital Flows," MPRA Paper 50165, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:50165
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    References listed on IDEAS

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    Cited by:

    1. Christopher D. Cotton, 2024. "Debt, deficits and interest rates," Economica, London School of Economics and Political Science, vol. 91(363), pages 911-943, July.
    2. Süleyman DEĞİRMEN & Filiz ELMAS, 2008. "Türkiye’de Faiz Ve Kur Politikalarının İhracat Üzerindeki Etkisi," Ekonomik Yaklasim, Ekonomik Yaklasim Association, vol. 19(69), pages 47-66.
    3. Säfvenblad, Patrik, 1998. "The Informational Advantage of Foreign Investors: An Empirical Study of the Swedish Bond Market," SSE/EFI Working Paper Series in Economics and Finance 240, Stockholm School of Economics.
    4. Tweneboah Senzu, Emmanuel & Ndebugri, Haruna, 2018. "The economic evidence in the relationship between corporate tax and private investment in Ghana," MPRA Paper 84729, University Library of Munich, Germany.
    5. Augustine C. Arize & Ioannis N. Kallianotis & Scott Liu & John Malindretos & Alex Panayides, 2014. "National Debt and Its Effects on Several Other Variables: An Econometric Study of the United States," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(4), pages 98-113, October.
    6. Säfvenblad, Patrik, 1999. "The Informational Advantage of Foreign Investors: An Empirical Study of the Swedish Bond Market," Working Paper Series 86, Sveriges Riksbank (Central Bank of Sweden).
    7. 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 –.
    8. 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.
    9. William Gissy, 1999. "Treasury bill rates and treasury cash reserves," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(4), pages 435-443, December.
    10. Clifford Thies & Robert Crawford, 1997. "Fisher equations inverted and not," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 21(2), pages 13-17, June.
    11. Eric M. Engen & R. Glenn Hubbard, 2005. "Federal Government Debt and Interest Rates," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 83-160, National Bureau of Economic Research, Inc.
    12. Raluca Gabriela Dulgheriu, 2016. "Understanding The Decline Of Greece," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 327-339, July.

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    More about this item

    Keywords

    long term nominal interest rates; budget deficits; net international capital inflows;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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