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Reconsidering the link between fiscal policy and interest rates in Australia

Author

Listed:
  • Yong Hong Yan

    (Treasury, Government of Australia)

  • Shane Brittle

    (Treasury, Government of Australia)

Abstract

This paper examines the empirical relationship between government debt and the real interest margin between Australian and US 10 year government bond yields. Results for the period 1990 to 2009 suggest that Australian general government net debt has no impact on the short run real interest margin, and has only a small effect in the long run. Further, the estimates suggest that movements in US general government net debt have a considerably larger effect than Australian general government net debt - implying that US influences take greater prominence in explaining the real interest margin.

Suggested Citation

  • Yong Hong Yan & Shane Brittle, 2010. "Reconsidering the link between fiscal policy and interest rates in Australia," Treasury Working Papers 2010-04, The Treasury, Australian Government, revised Sep 2010.
    • Handle: RePEc:tsy:wpaper:wpaper_tsy_wp_2010_4
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    File URL: http://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2010/Working%20Paper%202010-04/Downloads/Tsy_Working_Paper_2010_04.ashx
    File Function: First version, 2010
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    More about this item

    Keywords

    Interest rates; fiscal policy;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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