Budget Deficits and Interest Rates: A Fresh Perspective
IMF Working Papers, February 1, 2008
Source details
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- Budget Deficits and Interest Rates: A Fresh Perspective
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Bibliographic details
- Authors: Ari Aisen, David Hauner
- Published: February 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451869040.001
Extensions to the literature
- Examine both advanced and emerging economies, including for the first time a large emerging market panel.
- Explore interactions to explain heterogeneity in previous findings.
- Apply system GMM estimation.
Main findings
- There is overall a highly significant positive effect of budget deficits on interest rates.
- The effect of deficits on interest rates depends on interaction terms and is not uniform.
Conditions under which the deficit effect is significant
- Deficits are high.
- Deficits are mostly domestically financed.
- Deficits interact with high domestic debt.
- Financial openness is low.
- Interest rates are liberalized.
- Financial depth is low.
Subject coverage and keywords
- Subject: Budget planning and preparation, Domestic debt, Emerging and frontier financial markets, Government debt management, Inflation
- Keywords: budget deficit, deficit, nominal interest rate, WP