Federal deficits and the real rate of interest in the United States: A note

Cebula, Richard J.

doi:10.1007/bf00115656

Cited by 7 publications

(5 citation statements)

References 4 publications

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“…Further, unlike previous studies, we considered both short-term and long-term interest rates. Our results provide absolutely no support for the proposition that federal deficits affect interest rates and thus contradict the recent findings by Cebula (1987) and Kolluri and Giannaros (1987). Finally, the paper provides some further support for the 'inverted' Fisher hypothesis proposed by Carmichael and Stebbing (1983).…”

Section: Discussioncontrasting

confidence: 56%

“…In each of the eight estimates, the liquidity variable has a negative and significant effect, the deficit a negative but statistically insignificant effect and the unemployment rate a negative and significant effect. These results are thus radically different from those of Cebula (1987). Kolluri-Giannaros (1987), and Makin (1983) and consistent with those of Evans (1985Evans ( , 1987.…”

Section: The Resultssupporting

confidence: 38%

“…The liquidity proxy is represented by M1 and the deficits by the federal budget deficit, both in real terms. Both variables were divided by trend GNP (Y) following Cebula (1987) and Evans (1985). The ex post and the ex ante real rates were measured by using two alternate price indices, namely, the cost of living index and the GNP implicit price deflator.…”

Section: The Model and The Datamentioning

confidence: 99%

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Budget deficits and interest rates in the United States

Gupta

1989

Public Choice

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During the last several years, the issue of the effect of budget deficits on interest rates in the United States has attracted considerable attention. However, not only has the issue remained unsettled, but more recently has become even more clouded by conflicting evidence. For example, Cebula (1987) reported a significant and positive effect on ex post short-term real interest rate, Kolluri and Giannaros (1987) a significant and negative effect on ex-ante short-term real rate, Makin (1983) a 'mixed to weak' positive effect using short-term nominal rate and Hoelscher (1983), Motley (1983) and Evans (1985Evans ( , 1987 an insignificant effect, again, using short-term nominal interest rate as the dependent variable.A strict comparison of these studies is not possible because of the differences in the definition of the dependent variable employed, in the selection of the determinants, the data and the estimation procedures used. The aim of this paper is to test whether budget deficits influence interest rates regardless of whether they are nominal or real and if real, whether ex-post or ex-ante and in all cases, whether short-term or long-term, using the same set of data. A by-product of the study is that it sheds light on the 'inverted' Fisher hypothesis recently proposed by Carmichael and Stebbing (1983). The model and the dataIn order to test the robustness of our results, as far as the dependent variable was concerned, the following equations were estimated: i = a 1 + bli~ + clU + dlDEF + elM + v I (1) i = a 2 + bzi~e + c2U + d2DEF + ezM + v 2 (2) * Thanks are due to Zheng Wei for research assistance.

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Section: Discussioncontrasting

confidence: 56%

Section: The Resultssupporting

confidence: 38%

Section: The Model and The Datamentioning

confidence: 99%

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Budget deficits and interest rates in the United States

Gupta

1989

Public Choice

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“…Whenever a policy intervention is implemented in a market where the private sector is already established, that policy has the potential to crowd out or displace commercial market activity. Evidence of crowding out has been found in a diverse range of circumstances, such as government fiscal policies displacing private investment (Cebula 1987; Spencer and Yohe 1970), in some cases causing household consumption to decline (Barro 1997); government programs meant to cover the uninsured, prompting some already enrolled in private insurance to switch to the new program (Cutler and Gruber 1996; Kronick and Gilmer 2002); and local African manufacturers of mosquito bed nets going out of business after donors supplied them to communities for free (Easterly 2006). Understanding the degree to which government programs crowd out commercial market activity is essential for assessing impacts of any public policy.…”

mentioning

confidence: 99%

Subsidies and Crowding Out: A Double‐Hurdle Model of Fertilizer Demand in Malawi

Ricker‐Gilbert

Jayne

Chirwa

2011

American J Agri Economics

331

231

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This article uses a double-hurdle model with panel data from Malawi to investigate how fertilizer subsidies affect farmer demand for commercial fertilizer. The article controls for potential endogeneity caused by the nonrandom targeting of fertilizer subsidy recipients. Results show that on average 1 additional kilogram of subsidized fertilizer crowds out 0.22 kg of commercial fertilizer, but crowding out ranges from 0.18 among the poorest farmers to 0.30 among relatively nonpoor farmers.This indicates that targeting fertilizer subsidies to the rural poor is likely to maximize the contribution of the subsidy program to total fertilizer use.

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“…2 In particular, the more sensitive private investment is to changes in the interest rate compared to the sensitivity of the demand for money to the interest rate, the greater is crowding out. These interest rate sensitivities translate easily into the IS-LM diagram.…”

Section: Is-lm Analysismentioning

confidence: 99%