A NOTE ON THE IMPACT OF STRUCTURAL FEDERAL-BUDGET DEFICITS ON COMMERCIAL BANK INTEREST-RATES, 1963-1994

For the period 1963-1994, this study (a) empirically investigates the impact of structural federal budget deficits on the commercial bank co st of deposits and prime rate of interest and (b) provides current/upd ated information through 1994 on this important policy issue of the in terest rare impact of budget deficits. The instrumental variables esti mates in this study, which are based in a loanable funds framework, fi nd the cost Of deposits at commercial banks to be an increasing functi on of the structural deficit but the prime rate at banks to be unaffec ted by the deficit. The former result has potential implications for c rowding out.