We use a panel of 16 OECD countries over several decadesto 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.
CITATION STYLE
Caselli, F. (1998). Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries. IMF Working Papers, 98(55), 1. https://doi.org/10.5089/9781451969269.001
Mendeley helps you to discover research relevant for your work.