Budget Deficits and Interest Rates: A Fresh Perspective
Electronic Access:
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Summary:
We extend the literature on budget deficits and interest rates in three ways: we examine both advanced and emerging economies and for the first time a large emerging market panel; explore interactions to explain some of the heterogeneity in the literature; and apply system GMM. There is overall a highly significant positive effect of budget deficits on interest rates, but the effect depends on interaction terms and is only significant under one of several conditions: deficits are high, mostly domestically financed, or interact with high domestic debt; financial openness is low; interest rates are liberalized; or financial depth is low.
Series:
Working Paper No. 2008/042
Subject:
Budget planning and preparation Domestic debt Emerging and frontier financial markets Government debt management Inflation
English
Publication Date:
February 1, 2008
ISBN/ISSN:
9781451869040/1018-5941
Stock No:
WPIEA2008042
Pages:
19
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