An Empirical Analysis of Changes of the Impact of Federal Budget Deficits on Stock Market Returns: Evidence from the US Economy

Posted: 29 Jan 2015

See all articles by Klaus Grobys

Klaus Grobys

University of Vaasa; University of Jyväskyla

Date Written: February 7, 2013

Abstract

We investigate the causality between the real federal budget deficit returns and real stock market returns for the US economy. We divide the overall sample into two sub-samples running from 1968:1 to 1988:3 and from 1988:4 to 2011:3. In contrast to earlier studies, we find a significant positive relationship between real stock market returns and real federal budget deficit returns for both samples. Moreover, we find that the stochastic interrelations between these variables have considerably changed over time.

Keywords: federal budget deficits, stock markets, Granger Causality, impulse response

JEL Classification: E00, G12, G10, H30

Suggested Citation

Grobys, Klaus, An Empirical Analysis of Changes of the Impact of Federal Budget Deficits on Stock Market Returns: Evidence from the US Economy (February 7, 2013). Applied Economics Letters, Vol. 20, No. 9, 2013, Available at SSRN: https://ssrn.com/abstract=2552467

Klaus Grobys (Contact Author)

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa
Finland

University of Jyväskyla ( email )

Jyväskyla
Finland

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