Budget Deficits, National Saving, and Interest Rates

Real Interest Rates, Saving and Investment

This paper investigates the determinants of real interest rates at world and country level. The starting point is the idea that real interest rates re°ect the interaction of desired saving and planned investment, using the framework developed by Barro and Sala-i-Martin (1990) and Barro (1992). The paper updates previous results and extends the analysis to study long real interest rates. We anal...

The Long-Run Effects of Federal Budget Deficits on National Saving and Private Domestic Investment

The Congressional Budget Office’s analyses of the long-term effects of changes in federal fiscal policy include the effects of changes in federal budget deficits on aggregate output and income. Those effects depend on the responses of private saving and net inflows of foreign capital to changes in deficits. This paper reviews empirical estimates of those two effects and explains how changes in ...

Consumption and Saving Problem with Stochastic Interest Rates by Kyung

Fiscal Policy and the Mehra-Prescott Puzzle: On the Welfare Implications of Budget Deficits when Real Interest Rates are Low

Historically, average real returns on U.S. government debt have been far below the rate of economic growth, allowing the U.S. government to roll over its debt at a rather low cost. At the same time, the rate of return on capital has generally been above the growth rate, suggesting that the U.S. economy is dynamically efficient. The paper shows that the welfare implications of budget deficits in...

House Price Booms, Current Account Deficits, and Low Interest Rates

Financial deregulation can help rationalize the negative correlation between house prices and current account balance observed in the United States and in several other countries that have experienced the highest degree of turmoil during the recent financial crisis. Lower collateral requirements facilitate access to external funding and increase the demand for consumption and housing. As a cons...