The Impact of the Federal Budget Deficit on the Nominal Interest Rate Yield on U.S. Treasury Notes, 1979-2001

This study empirically examines the impact of the federal government budget deficit on the nominal interest rate yield on U.S. Treasury notes over the 1979-2001 period. In a system that includes the monetary base, the civilian labor force unemployment rate, the ex ante real 52 week Treasury bill rate, and the percentage real growth rate of the S&P 500 stock index, ECM (error-correction model) estimation finds that the total federal budget deficit acted to increase the nominal interest rate yield on seven year U.S. Treasury notes over the study period