International Advances in Economic Research

, Volume 2, Issue 1, pp 34–40 | Cite as

Deficts and interest rates: A nonparamertic analysis

  • William G. Gissy


Numerous studies analyzing the relationship between federal budget deficits and short-term interest rates have generated conflicting results. This study investigates the relationship between monthly treasury borrowing and the monthly change in the nominal three-month T-bill rate. Employing two nonparametric correlation tests, this study concludes that significant contemporaneous correlation exists between treasury borrowing and interest rate changes. Additionally, this study finds evidence of a treasury reaction function, in that treasury borrowing is inversely related to the previous months interest rate change.


Economic Growth Interest Rate Rate Change International Economic Correlation Test 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Arora, H.; Blakley, P. "Budget Deficits and Central Bank Behavior: An Empirical Note," presented at the Atlantic Economic Society conference, Montreal, Canada, October 1994.Google Scholar
  2. Arora, H.; Dua, P. "Budget Deficits, Domestic Investment and Trade Deficits,"Contemporary Policy Issues, 11, 1993, pp. 29–44.Google Scholar
  3. Barth, J.; Iden, G.; Russek, F.; Wohar, M. "The Effects of the Federal Budget Deficits on Interest Rates and the Composition of Domestic Output," in R. Penner, ed.,The Great Fiscal Experiment, Washington, DC: Urban Institute Press, 1990.Google Scholar
  4. Bovenberg, A. "Long-Term Interest Rates in the United States,"International Monetary Fund Staff Papers, 35, 1988, pp. 382–90.Google Scholar
  5. Cebula, R.; Bates, K.; Marks, L.; Roth, A. "Federal Government Budget Deficits and Interest Rates in the United States: An Empirical Analysis."Economica Internationale, 41, 1988, pp. 1–7.Google Scholar
  6. Darrat, A. "Structural Federal Deficits and Interest Rates: Some Causality and Cointegration Tests,"Southern Economic Journal, 56, 1990, pp. 363–74.Google Scholar
  7. Gerring, L.; Leeds, E. "Deficits and Short-Term Interest Rates: Another Look at the Arguments," presented at the Atlantic Economic Society conference, Philadelphia, Pennsylvania, October 1993.Google Scholar
  8. Gissy, W. "Are Interest Rate Spreads Viable Politcy Targets,"International Advances in Economic Research, 1, 1995, pp. 137–41.CrossRefGoogle Scholar
  9. Holmes, J.; Park, D. "Does Monetary Policy Cause Changes in Real Output?" presented at the Southern Economic Association conference, Orlando, Florida, November 1994.Google Scholar
  10. Hotelling, H.; Pabst, M. "Rank Correlation and Tests of Significance Involving No Assumption of Normality,"Annals of Mathematical Statistics, 7, 1936, pp. 29–43.Google Scholar
  11. Kendall, M.Rank Correlation Methods, London: Griffin Publishing, 1948.Google Scholar
  12. Kruskal, W.; Wallis, W. "Use of Ranus in One-Criterion Variance Analysis,"Journal of the American Statistical Association, 47, 1952, pp. 583–621.Google Scholar
  13. Laumas, G. "Anticipated Budget Deficits, Monetary Policy and the Rate of Interest,"Southern Economic Journal, 55, 1989, pp. 375–82.Google Scholar
  14. Ostrosky, A. "Federal Government Budget Deficits and Interest Rates: Comment,"Southern Economic Journal, 56, 1990, pp. 802–03.Google Scholar
  15. Rose, D.; Hakes, D. "Deficits and Interest Rates as Evidence of Ricardian Equivalence,"Eastern Economic Journal, 21, 1995, pp. 57–66.Google Scholar
  16. Siegel, S.Non-Parametric Statistics for the Behavioral Sciences, New York, NY: McGraw-Hill, 1956.Google Scholar
  17. Suppes, P.A Probability Theory of Causality, Amsterdam; North-Holland, 1970.Google Scholar
  18. Zahid, D. "Government Budget Deficits and Interest Rates: The Evidence Since 1971 Using Alternative Deficit Measures,"Southern Economic Journal, 54, 1988, pp. 725–31.Google Scholar

Copyright information

© Atlantic Economic Society 1996

Authors and Affiliations

  • William G. Gissy
    • 1
  1. 1.Morehouse CollegeUSA

Personalised recommendations