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

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.

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