World public debt and real interest rates

Real interest rates appear to have risen in virtually all industrialized co untries in the 1980s and 1990s relative to levels that prevailed in earlier decades. There is concern that this may reflect higher public debt, which is crowding out private-sector activity. There has also been increasing int ernational capital market integration, implying that interest rates in any country may be sensitive to global fiscal developments. This paper estimate s the effects of such fiscal developments on real interest rates in nine in dustrial countries. The results imply that the increase in OECD-wide govern ment debt since the late 1970s was a major factor in the rise in real inter est rates.