Deficits and interest rates: : An analysis examining some neglected variables

This paper examines the impact of federal deficits on the nominal long-term rate of interest in the United States, using the IS-LM and loanable-funds models. Unlike the other studies, however, the paper expands these models to include variables to reflect wartime periods, bank regulation and deregulation, recession, and new exchange rate systems. It is found that the federal deficits have positive and significant impact on the long-term rate of interest during the period 1955–1985.