ABSTRACT
The last chapter tried to model the effects of budget deficits on interest rates. This chapter addresses the empirical question: does there exist evidence to support the view that such effects do in fact exist in the countries included in our sample? We approach this question in a number of ways. First, we look at some descriptive data on real interest rates and deficits, both nominal and real, and examine whether the data reveal any regularities. While the regularities, if any, do not necessarily indicate causation, they may nevertheless be indicative of phenomena that need explaining. Second, we offer a brief summary of the evidence available in the literature on this issue. Finally, we estimate the model presented in Chapter 6.
