Deficit-reduction laws raise real interest rates, impacting economy and investments.
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 the government was expected to spend more or have higher deficits, real interest rates went up. On the other hand, when expected spending and deficits were lower, real interest rates decreased. This means that government actions can impact how much it costs to borrow money and the value of the dollar.