New Evidence on the Interest Rate Effects of Budget Deficits and Debt

摘要: Estimating the effects of government debt and deficits on Treasury yields is complicated by need to isolate fiscal policy from other influences. To control for business cycle, associated monetary actions, debt, deficits, interest rates, this paper studies relationship between longhorizon forward rates future federal as projected Congressional Budget Office. For entire 30-year sample which these projections are available, estimated statistically significant economically relevant: about 25 basis points per percentage point increase in deficit/GDP ratio, 3 4 debt/GDP ratio. Under plausible assumptions parameter estimates shown be consistent with predictions neoclassical growth model. JEL classification: E6, H6.