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Title: |
On Budget Deficits and Interest Rates: Another
Look at the Evidence |
| Author: |
Darrat, Ali F. |
| Author
Affiliation: |
LA Tech U |
| Source: |
International Economic Journal, Summer 2002, v. 16, no. 2, pp. 19-29 |
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Publication Date: |
Summer 2002 |
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Abstract: |
This paper
revisits the relationship between government budget deficits and
interest rates in Greece. Contrary to the results of Vamvoukas (1997),
the evidence I deduce from system estimations of error-correction models
consistently denies any causal impact of the deficits on interest rates.
Indeed, the high correlation observed between the two variables appears
to be the outcome of interest rates causing purposeful changes in the
stance of fiscal policy. These findings stand up to numerous sensitivity
tests and provide further support to the overwhelming evidence against
the crowding-out hypothesis. |
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