Economics, Econometrics and Finance
8 years ago

Deficit-Reduction Laws Increase Real Interest Rates, Impacting Economy and Investments.

Finance and Economics Discussion Series
The Effect of Deficit-Reduction Laws on Real Interest Rates
Douglas W. Elmendorf

Paper Summary

The study looked at how laws to reduce government debt affected real interest rates. By analyzing news reports on these laws, the researchers found that when expected government spending and deficits went up, real interest rates and the dollar's value also increased. On the other hand, when expected spending and deficits went down, real rates and the dollar's value decreased.

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