## Government Debt and Long-Term Interest Rates

_IMF Working Papers, March 1, 2006_

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**Canonical URL:** [Government Debt and Long-Term Interest Rates](https://www.imf.org/en/publications/wp/issues/2016/12/31/government-debt-and-long-term-interest-rates-18866)

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## Bibliographic details
- Authors: Noriaki Kinoshita
- Published: March 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451863239.001

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### Summary
- Author: Noriaki Kinoshita
- Date: March 1, 2006
- Main focus: examines the relationship between government debt and long-term interest rates.
- Core conclusion: simulated and estimated interest rate effects of government debt tend to be small; however, an increase in government consumption and debt leads to a considerably larger effect. The paper argues that, although the interest rate effects of pure crowding out may be limited, the economic impact of accumulating government debt cannot be ignored.

### Methodology
- Theoretical approach:
  - Specifies and solves a dynamic general equilibrium model that incorporates debt nonneutrality.
  - Conducts numerical simulations using the model.
- Empirical approach:
  - Uses panel data for 19 industrial countries to estimate relationships and assess support for theoretical predictions.

### Key findings and results
- Empirical estimation and simulations provide some evidence supporting the theoretical predictions.
- The simulated and estimated interest rate effects of government debt tend to be small.
- An increase in government consumption combined with increased government debt leads to a considerably larger interest rate effect.
- The paper emphasizes that pure crowding-out interest rate effects may be limited, but the broader economic consequences of accumulating government debt are significant.

### Subjects and keywords
- Subjects: Financial services; Government consumption; Government debt management; Long term interest rates; National accounts; Public debt; Public financial management (PFM); Real interest rates
- Keywords: crowding out; crowding-out effect; debt; debt level; debt measure; debt neutrality; dynamic general equilibrium model; Government consumption; Government debt; Government debt management; government debt result; increase in government debt; interest rate effects of an increase; Long term interest rates; long-term interest rates; physical capital; production function; Real interest rates; results from an increase; simulated interest rate effect; simulated interest rate effect of government debt; steady-state interest rate effects; WP; yield

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/government-debt-and-long-term-interest-rates-18866_