An Empirical Analysis of the Impact of Federal Budget Deficits on Long-term Nominal Interest Rate Yields, 1973.2-1995.4, Using Alternative Expected Inflation Measures

摘要

Using two alternative measures of expected inflation, this study investigates the impact of federal budget deficits on nominal long-term interest rate yields for the 1973.2-1995.4 period. Based on an open­ economy loanable funds framework, four instrumental variable esti­mates in first differences are provided. In all cases, the budget deficit is found to elevate the nominal long-term interest rate.