Fiscal Policy, Trigger Points and Interest Rates: Additional Evidence From the U.S.

31 Pages Posted: 7 Nov 2011

See all articles by Gerhard Reitschuler

Gerhard Reitschuler

University of Innsbruck

Rupert Sendlhofer

University of Innsbruck - Department of Public Finance

Date Written: August 23, 2011

Abstract

We empirically investigate whether the relationship between interest rates and public deficits/debt may be nonlinear for the U.S. Using threshold estimation, we find evidence of level-dependent effects on interest rates, implying a significant effect of projected deficits and debt in the U.S. only if the deficit surpasses approximately 5% of GDP.

Keywords: public debt, public deficit, long-term interest rates, nonlinearity, threshold models, Domar model

JEL Classification: E43, E62, H62

Suggested Citation

Reitschuler, Gerhard and Sendlhofer, Rupert, Fiscal Policy, Trigger Points and Interest Rates: Additional Evidence From the U.S. (August 23, 2011). Available at SSRN: https://ssrn.com/abstract=1955821 or http://dx.doi.org/10.2139/ssrn.1955821

Gerhard Reitschuler (Contact Author)

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Rupert Sendlhofer

University of Innsbruck - Department of Public Finance ( email )

Austria

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