Jesper Lindé: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, SE-113 83 Stockholm, Sweden
Abstract: This paper contains an empirical investigation of the effects of fiscal policy on the yield curve based on a conventional stochastic macro model designed for a small open economy. The empirical investigation undertaken utilizes data for Sweden, a country which has experienced very large fluctuations in the government budget deficits and in the short- and long-term nominal interest rates, thus providing a better empirical test than previous studies. According to the empirical results, larger budget deficits spell higher interest rates, as posited by conventional macroeconomic theory.
39 pages, First version: January 28, 1998. Revised: November 17, 1998.
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