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Title: |
Budget Deficits and Interest Rates in a Small Open Economy--Another Look
at the Evidence: Reply |
| Author: |
Vamvoukas,
George A. |
| Author
Affiliation: |
Athens U Econ |
| Source: |
International Economic Journal, Summer 2002, v. 16, no. 2, pp. 31-36 |
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Publication Date: |
Summer 2002 |
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Abstract: |
Additional
empirical research on the links between budget deficits and interest
rates is highly relevant for the ongoing discussion about the validity
of the Keynesian proposition and the Ricardian equivalence. This study
using data from a small open economy investigates the empirical
framework of both paradigms by applying SURE (Seemingly Unrelated
Regression) technique and impulse response functions. SURE results lead
to the indication that a bidirectional pattern of causality might exist
between budget deficits and interest rates. Impulse response functions
show that deficits and interest rates follow a joint feedback causality.
This result is consistent with the Keynesian proposition, because
changes in interest rates are a response to positive movements in budget
deficits. |
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