Empirical note on the impact of federal government budget deficits on bank mortgage rates in the US, 1963-1995

Abstract

This study examines, for the period 1963–1995, the impact of federal budget deficits in the US on mortgage interest rates at commercial banks. Interest rates at banks have been largely neglected in the deficit/interest rate literature for the US. Moreover, the deficit/interest rate literature for the US has largely ignored the second half of the 1980s and the 1990s. Accordingly, this study investigates the impact of federal budget deficits on the mortgage rate charged by commercial banks, while providing current/updated information on this important policy issue. The estimates find this mortgage rate to be an increasing function of the budget deficit.