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Positive correlation between government expenditure and real interest rate: Testing Ramsey Model based on American and Chinese data

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  • Liqun Du

    (Peking University)

Abstract

In the classical Ramsey Model, temporary increase of government expenditure will raise real interest rate. By using the data of American expenditure on national defense and the interest rate of 10-year constant maturities from 1959 to 2002, the paper points to the conclusion from the empirical analysis of positive correlation between government expenditure and real interest rate that temporary increase of government expenditure will surely lead to a rise in real interest rate.

Suggested Citation

  • Liqun Du, 2015. "Positive correlation between government expenditure and real interest rate: Testing Ramsey Model based on American and Chinese data," Proceedings of Economics and Finance Conferences 2204985, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:2204985
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    File URL: https://iises.net/proceedings/4th-economics-finance-conference-london/table-of-content/detail?cid=22&iid=015&rid=4985
    File Function: First version, 2015
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    Cited by:

    1. Enock Mwakalila, 2020. "Crowding Out of Private Sector in Tanzania: Government Expenditure, Domestic Borrowing, and Lending Rates," Emerging Economy Studies, International Management Institute, vol. 6(1), pages 123-135, May.

    More about this item

    Keywords

    Ramsey Model; Government Expenditure; Real Interest Rate;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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