CENTRAL GOVERNMENT BUDGET DEFICITS AND EX ANTE REAL LONG TERM INTEREST RATES IN ITALY: AN EMPIRICAL NOTE FOR 1955-1989

This paper empirically investigates the impact of central government budget deficits upon interest rates in Italy. The period studied runs from 1955 to 1989, and annual data are used. The interest rate measure is the ex ante real rate of interest. It is found, using an instrumental variables technique to control for the endogeneity of the budget deficit, that the budget deficit raises the ex ante real interest rate in Italy.