This posting shows similarities in the wording of the following publication
by Douglas Agbetsiafa and the works of other, earlier published authors:
Agbetsiafa, Douglas K., "Distributed Lag Effects of Fiscal
Deficits On Short-Term and Long-Term Interest Rates", Proceedings,
Global Business. (November 1996): 318-324.
Douglas Agbetsiafa is Professor of Economics
and Chair of the Economics Area at Indiana University South Bend (IUSB). He holds a PhD in Economics from the
University of Notre Dame. That PhD also contains wording that is similar to earlier published authors.
From Agbetsiafa publication, page 318:
The growth of fiscal deficits and the resulting increase in government
debt have attracted the attention of policy makers and financial market analysts.
Theoretical affects of borrowed deficits are wide ranging and substantial. A very
strong hypothesis: predictable changes in government debt do not affect any other
variable in the economy. As a first approximation, suppose that changes in government
debt do not affect private wealth if agents forecast the implied substitution of
future taxes for current taxes as in some of Barro's models (1974). Faster growth
of real debt will not increase the growth the growth of spending
or the inflation rate because agents do not perceive any improvement in their situation
when they hold more debt. Instead, debt supply is accompanied by increased private
demand for debt; as a result, there is no effect on interest rates if greater
debt is issued to the public.
Compare this to:
.. very strong hypothesis: predictable changes in government
debt do not affect any other variable in the economy. As a first approximation,
suppose that changes in government debt do not affect private wealth if agents forecast
the implied substitution of future taxes for current taxes as in some of Barro's
models (1974) . Faster growth of
real debt will not increase the growth of spending or the inflation rate because
agents do not perceive any improvement in their situation when they hold more debt.
Increased debt supply is accompanied by increased private demand for debt; as a
result, there is no effect on interest rates of greater debt issued to the public.
Gerald Dwyer (1982) Inflation and Government Deficits. Economic Inquiry, 20(3): 315-329. [Page
320]
From Agbetsiafa publication, page 318:
Rational behavior by the central bank implies that debt issued
to the public has no effect on the central bank behavior. If the amount of
privately held debt is a matter of indifference to private agents, then presumably
any changes in that debt do not generate costs or benefits to the monetary
authorities for different behavior. As a result, if government debt is not net
wealth and the political process reflects this without misconceptions. Then there
is no reason to expect the central bank purchases to reflect interest rate
effects that are nonexistent. This does not necessarily deny that the central banks
may engage in even-keeling operations and stabilize interest rates as bonds issued
and distributed in the economy.
Compare this to:
"Rational" behavior by the
Federal Reserve implies that debt issued to the public has no affect on the
Federal Reserve's behavior. If the amount of privately-held debt is a matter of indifference to private agents,
the presumably any changes in that debt do not generate costs or benefits to the
Federal Reserve for different behavior. As a result, if government debt is not net wealth and the political
process reflects this without misconceptions, then there is no reason to expect
Federal Reserve purchases to reflect interest-rate effects that are nonexistent.
This does not necessarily deny that the Federal Reserve may engage in even-keeling
operations and stabilize interest rates as bonds are issued and distributed in
the economy.
Gerald Dwyer (1982) Inflation and Government Deficits. Economic Inquiry, 20(3): 315-329. [Page
320]
From Agbetsiafa publication, page #:
This imbalance forces nominal interest rates to rise. On the
other hand, the Ricardian hypothesis argues that neither consumption nor interest
rates arc affected by the stock of government debt or by the deficit. In an extensive
survey, Seater (1993) concludes.that the Ricardian equivalence is approximately
consistent with the data.
Compare this to:
This result is consistent with the Ricardian hypothesis that neither
consumption nor interest rates are affected by the stock of government debt or
by the deficit. In an extensive survey, Seater (1993) also concludes that the
Ricardian hypothesis is approximately consistent with the data.
http://www.richmondfed.org/publications/research/economic_quarterly/1994/fall/pdf/mehra.pdf [Footnote
3]
From Agbetsiafa publication, page 319:
Attempts to use quarterly data to capture the effects of fiscal
deficits on interest rates have been plagued by anomalies. First, there exists theoretically
surprising results such as larger deficits causing lower interest rates
(Plosser 1982; Evans 1985, 1986, 1987a and b; and U.S. Treasure Department
1984). Secondly, there is a lack of
clarity as to how deficits should be defined (Eiser 1986, 1989a, b and c;
Gramlich 1989). Finally, there is the problem of parameter instability in the models
used (Swamy, Kolluri, and Singamessetti 1990).
Compare this to:
ATTEMPTS TO USE QUARTERLY AND ANNUAL DATA to capture the
effect of deficits on interest rates have been plagued by a number of
anomalies. First, and most importantly, there exists theoretically surprising
results such as larger deficits causing lower interest rates (Plosser 1982;
Evans 1985, I9S6. 1987a and b; and U.S. Treasury Department 1984). Secondly,
there is a lack of clarity as to how deficits should be defined (Eisner 1986, 1989a-b
and c; Gramlich 1989), Finally, there is the problem of parameter instability
in the models used (Swamy, Kolluri. and Singamsetti 1990).
Michael Regan Quigley & Susan Porter-Hudak (1994) “A new
approach in analyzing the effect of deficit announcements on interest rates”,
Journal of Money, Credit and Banking 26(4): 894-902 [See start of very first
paragraph on page 894]
