An empirical investigation into the impact of US federal government budget deficits on the real interest rate yield on intermediate-term treasury issues, 1972-2012
This study provides new empirical evidence on the impact of the federal budget deficit on the <italic>real</italic> interest rate yields on intermediate-term debt issues of the US Treasury, represented herein by the <italic>ex post</italic> real interest rate yields on 3-year Treasury notes and 7-year Treasury notes, two interest rate measures that have received essentially no attention in the economics and finance literature in recent years. This study is couched within a loanable funds model that includes two <italic>ex post</italic> real interest rate yields, the monetary base as a per cent of GDP, the change in per capita real GDP, net financial capital inflows as a per cent of GDP and the budget deficit as a per cent of GDP. This study uses annual data for the study period 1972 to 2012, a time period that includes 'quantitative easing' monetary policies by the Federal Reserve. Two-stage least squares estimations reveal that the federal budget deficit, expressed as a per cent of GDP, exercised a positive and statistically significant impact on the <italic>ex post</italic> real interest rate yields on both 3-year and 7-year Treasury notes, even after allowing for quantitative easing and other factors. The study also considers the time period 1980 to 2012 and offers simple robustness testing.
Year of publication: |
2014
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Authors: | Cebula, Richard J. |
Published in: |
Applied Economics. - Taylor & Francis Journals, ISSN 0003-6846. - Vol. 46.2014, 28, p. 3483-3493
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Publisher: |
Taylor & Francis Journals |
Saved in:
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