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The Nominal Interest Rate Yield Response to Net Government Borrowing: GLM Estimates, 1972-2012

By Richard Cebula


This study provides current empirical evidence on the impact of net U.S. government borrowing (budget deficits) on the nominal interest rate yield on ten-year Treasury notes. The model includes an ex ante real short-term real interest rate yield, an ex ante real long-term interest rate yield, the monetary base as a percent of GDP, expected future inflation, the percentage growth rate of real GDP, net financial capital inflows, and other variables. This study uses annual data for the period 1972-2012. GLM (Generalized Linear Model) estimates imply, among other things, that the federal budget deficit, expressed as a percent of GDP, exercised a positive and statistically significant impact on the nominal interest rate yield on ten-year Treasury notes over the study period.

Topics: E43 - Interest Rates: Determination, Term Structure, and Effects, E52 - Monetary Policy, E62 - Fiscal Policy, H62 - Deficit; Surplus
Year: 2014
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