Recent studies of the Fisher relation have yielded contradictory conclusions on the importance of taxes in determining the long-run response of nominal interest rates to changes in expected inflation. This study uses data on taxable U.S. treasury and tax exempt municipal bond interest rates to...

This paper tests the stability of the U.S. federal intertemporal budget constraint over the postwar period. The implied equilibrium budget path is estimated and used to determine which component of the budget has greater responsibility for the recent intertemporal violations.

Using a simple cointegrated vector autoregression (VAR) I find strong evidence for a liquidity effect at policy relevant time horizons with a broad monetary aggregate. The liquidity effect is present for both nominal and real interest rates.