An Empirical Note on the Impact of the Federal Budget Deficit on Ex Ante Real Long-Term Interest Rates, 1973-1995

Cebula, Richard J.

doi:10.2307/1061244

Cited by 43 publications

(51 citation statements)

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“…Thus, it appears that after allowing for a variety of other factors, the higher the federal budget deficit (as a percent of GDP) the higher has been the nominal interest rate yield on 30 year fixed-rate home mortgages. This finding is consistent with a variety of empirical studies of earlier periods, including Al-Saji (1992, 1993, Barth, Iden and Russek (1984, Barth, Iden, Russek, and Wohar(1989), Cebula (1988Cebula ( , 1997, Cebula and Belton (1993), Cebula and Cueller (2010), Findlay (1990), Gissey (1999), Hoelscher (1986), Johnson (1992), Cebula & Saltz (1998), Tanzi (1985), and Zahid (1988).…”

Section: Resultssupporting

confidence: 87%

“…It is expected that, in principle paralleling Russek (1984, 1985), Cebula (1988Cebula ( , 1997Cebula ( , 2005, Cueller (2010), andHoelscher (1986), the real domestic demand for long term bonds [mortgages, in this case] is a decreasing function of the expected future inflation rate, whereas the real domestic supply of long term bonds is an increasing function thereof. According to the conventional wisdom, the private demand for long term corporate bonds is a increasing function of Y, ceteris paribus, since as Y rises and the pace of real economic activity rises, and therefore economic agents are more willing and able to assume the risk associated with such bonds, as well as more able to afford to pay for same (Hoelscher, 1986;Cebula & Saltz, 1998;Cebula, 2005).…”

Section: Ndt+1 = the National Debt In Period T+1mentioning

confidence: 92%

“…Based in principle on Hoelscher (1986), Barth, Iden, and Russek (1985) and Cebula (1988Cebula ( , 1997Cebula ( , 2007, to explain the determination of the long term mortgage interest rate yield (MORT) including the impact of the budget deficit on same, a loanable funds model is adopted in which the long-term interest rate yield is determined by an equilibrium of the following form: 1 …”

Section: Ndt+1 = the National Debt In Period T+1mentioning

confidence: 99%

“…The budget deficit is scaled by GDP; this is because the size of the deficit should be judged relative to the size of the economy (Evans, 1985;Hoelscher, 1986;Cebula, 1997Cebula, , 2005Holloway, 1986;Ostrosky, 1990). Expressing the deficit variable as contemporaneous with the interest rate variable is common in this literature (Evans, 1985;Hoelscher, 1986;Ostrosky, 1990;Cebula, 1997Cebula, , 2005; it should also be observed that MORT is treated as contemporaneous with PE and COST.…”

Section: Variables and Datamentioning

confidence: 99%

“…Expressing the deficit variable as contemporaneous with the interest rate variable is common in this literature (Evans, 1985;Hoelscher, 1986;Ostrosky, 1990;Cebula, 1997Cebula, , 2005; it should also be observed that MORT is treated as contemporaneous with PE and COST. The data were obtained from the Council of Economic Advisors (2010) and the Board of Governors of the Federal System (2013).…”

Section: Variables and Datamentioning

confidence: 99%

See 4 more Smart Citations

Recent Evidence on the Impact of Federal Government Budget Deficits on the Nominal Long Term Mortgage Interest Rate in the U.S

Cebula¹,

Foley²

2013

IJFAS

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This study provides recent empirical evidence on the impact of the federal budget deficit on the nominal long term mortgage interest rate yield in the U.S. The study is couched within a loanable funds model that includes the cost to financial institutions of borrowing funds, expected inflation, and the percentage growth rate of real GDP, as well as the federal budget deficit expressed as a percent of GDP. Using annual data for the period 1970-2008, two-stage least squares autoregressive estimation reveals that the federal budget deficit, expressed as a percent of GDP, exercised a positive and statistically significant impact on the long term mortgage interest rate yield.

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Section: Resultssupporting

confidence: 87%

Section: Ndt+1 = the National Debt In Period T+1mentioning

confidence: 92%

Section: Ndt+1 = the National Debt In Period T+1mentioning

confidence: 99%

Section: Variables and Datamentioning

confidence: 99%

Section: Variables and Datamentioning

confidence: 99%

See 3 more Smart Citations

Recent Evidence on the Impact of Federal Government Budget Deficits on the Nominal Long Term Mortgage Interest Rate in the U.S

Cebula¹,

Foley²

2013

IJFAS

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A Note on Deficit, Implicit Debt, and Interest Rates

Wang

2005

Southern Economic Journal

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This short note revisits the long‐standing issue of the relationship between government borrowings and interest rates using vector autoregression (VAR) models. In particular, we consider the dynamic impacts of both official deficit and implicit debt on the interest rates. Two measures of unfunded Social Security obligations (implicit debt) are examined. The recently developed generalized forecast error variance decompositions, which are invariant to the ordering of variables in VARs, are adopted. We find that temporary shocks to the official deficit do not cause real interest rate changes in the short term but do cause moderate changes in the long term. They have significant impact on nominal interest rates in both short and long horizons. The implicit debt also appears to have some moderate influence on real interest rates at long horizons.

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Deficits, Explicit Debt, Implicit Debt, and Interest Rates: Some Empirical Evidence

Wang

Rettenmaier

2008

Southern Economic Journal

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This study revisits the long‐standing issue of the relationship between government borrowing and long‐term interest rates through innovations accounting in vector autoregression models. In particular, we consider the dynamic effects of primary deficits and both explicit and implicit debt on long‐term interest rates. In addition to the widely used Cholesky decomposition, the emerging method of directed acyclic graphs is also used for the purpose of model identification. We find that federal deficits and explicit and implicit debt all affect the nominal long‐term interest rates to varying degrees; although, the effects tend to die out after several years. The evidence assembled here is preliminary because of data availability. Nevertheless, it does suggest that it is important to consider the increasing amount of debt implicit in the government entitlement programs in the future discussion of fiscal discipline.

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An Empirical Note on the Impact of the Federal Budget Deficit on Ex Ante Real Long-Term Interest Rates, 1973-1995

Cited by 43 publications

References 0 publications

Recent Evidence on the Impact of Federal Government Budget Deficits on the Nominal Long Term Mortgage Interest Rate in the U.S

Recent Evidence on the Impact of Federal Government Budget Deficits on the Nominal Long Term Mortgage Interest Rate in the U.S

A Note on Deficit, Implicit Debt, and Interest Rates

Deficits, Explicit Debt, Implicit Debt, and Interest Rates: Some Empirical Evidence

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