Ardagna, Silvia, Caselli, Francesco and Lane, Timothy (2004) Fiscal discipline and the cost of public debt service: some estimates for OECD countries. 10788. National Bureau of Economic Research, Cambridge, MA., USA.
We use a panel of 16 OECD countries over several decades to investigate the effects of government debts and deficits on long-term interest rates. In simple static specifications, a one-percentage-point increase in the primary deficit relative to GDP increases contemporaneous long-term interest rates by about 10 basis points. In a vector autoregression (VAR), the same shock leads to a cumulative increase of almost 150 basis points after 10 years. The effect of debt on interest rates is non-linear: only for countries with above-average levels of debt does an increase in debt affect the interest rate. World fiscal policy is also important: an increase in total OECD-government borrowing increases each country's interest rates. However, domestic fiscal policy continues to affect domestic interest rates even after controlling for worldwide debts and deficits.
|Item Type:||Monograph (Working Paper)|
|Additional Information:||© 2004 Silvia Ardagna, Francesco Caselli, and Timothy Lane.|
|Library of Congress subject classification:||H Social Sciences > HJ Public Finance|
|Journal of Economic Literature Classification System:||H - Public Economics > H6 - National Budget, Deficit, and Debt|
|Sets:||Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
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