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.
To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.