EMPIRICAL NOTE ON THE IMPACT OF US FEDERAL-GOVERNMENT BUDGET DEFICITSON BANK INTEREST-RATES

This study examines, for the period 1963-1995, the impact of federal b udget deficits in the US an interest rates at commercial banks. Intere st rates at banks have been largely neglected in the deficit/interest rate literature for the US. Moreover, the deficit/interest rate litera ture for the US has effectively ignored the second half of the 1980s a nd the 1990s. Accordingly, this study empirically investigates the imp act of federal budget deficits on the cost of deposits to banks and pr ime rate of interest charged by banks, while providing current/updated information on this important policy issue of the interest-rate impac t of budget deficits. The estimates find the cost of deposits at banks to be an increasing function of the budget deficit but the prime rate to be unaffected by the budget deficit.