Impact of budget deficits on ex post real long-term interest rates

The study investigates the impact of budget deficits on ex post real long-t erm interest rates over the 1973-1995 period, thereby addressing an interes t rate measure and time period, i.e. beyond the mid- to late-1980s, that ha ve received only limited attention in the literature. The instrumented vari ables (IV) estimate provides strong evidence that budget deficits do raise the long-term real ex post rate of interest.