IMPACT OF US STRUCTURAL BUDGET DEFICITS ON THRIFT INSTITUTION INTEREST-RATES, 1964-1995

This study examines, for the period 1964-95, the impact of structural federal budget deficits in the US on interest rates at savings and loa n institutions (S&Ls). Interest rates at S&Ls have largely been neglec ted in the deficit/interest rate literature. Moreover, the deficit/int erest rate literature for the US has largely ignored the second half o f the 1980s and the 1990s. Accordingly, this study (1) empirically inv estigates the impact of structural budget deficits on the cost of depo sits to S&Ls and the mortgage interest rate charged by S&Ls and (2) pr ovides current/updated information through 1995 on this important issu e of the interest-rate impact of budget deficits. The empirical estima tes find the S&L cost of deposits and mortgage rate to be increasing f unctions of the structural deficit.