The effect of government spending and budget deficits on interest rates - an empirical study in Taiwan

• Main Authors: Kevin Chen, 陳正佑
• Other Authors: Tai-Hsin Huang
• Format: Others
• Language: zh-TW
• Published: 1993
• Online Access: http://ndltd.ncl.edu.tw/handle/40409862283281492367

碩士 === 淡江大學 === 金融研究所 === 81 === The primary purposes of this study are as follows: 1.Using the model developed by Evans(1987b) to test the effect of government spending and budget deficits on interest rates and the feasibility of the Ricardian Equivalence theorem in Taiwan. 2.Using the decomposition methods developed by Miller （1988）to decompose the government spending into temporary part and perman- ent part , and then we test the effect of temporary government spending on interest rates.The conclusions are as follows: 1.Model one: There is no evidence that the innovations of govern- ment spending and budget deficits have significant effect on in- terest rates, and we can conclude that Ricardian Equivalence th- eorem are more approapriate than IS-LM model in Taiwan.Since the economy''s path of real economic variablesis invariant with shift between taxe and budget deficits,public finance can play a more active role by issuing bonds. 2.Model two:Temporary government spendings of definition one have no effect onall interest rates.Temporary government spendings of definition two have no effect on interest rates paid by comm- ercial banks,but do have significanteffect on money market rate of interbank call loans and commercial paper-31-90 days and un- organized money market rate on loans against post-dated checks. The government should avoid a large temporary changes in govern- ment expenditures to prevent the interest rates from sharp move- ments.