Abstract
This current study was aimed at exploring the consequential effects of both short- and long-term interest rates on fiscal deficits in BRICS economies. The panel vector error correction model (PVECM) techniques were employed to capture both long-run and short-run dynamics between variables. Using annual panel data, spanning the period 1995 to 2019, which was derived from OECD and IMF, this current study discovered a positive and significant relationship between both short- and long-term interest rates in BRICS economies. Moreover, the results of the study revealed a negative and significant relationship between GDP and fiscal deficits. These results confirmed that fiscal deficits hypothetically crowd out private investment and consumption through increased effects on interest rates. Therefore, the implementation of policy mix (interaction between monetary policy and fiscal policy) was recommended to unnecessary or unproductive government expenditure that may result in increased fiscal deficits and interest rate in BRICS economies.
Highlights
The 2007-08 US financial crisis was regarded as one of the drastic global economic predicaments following the 1930 Great Depression
This current study was aimed at exploring the consequential effects of both short- and long-term interest rates on fiscal deficits in BRICS economies
Using annual panel data, spanning the period 1995 to 2019, which was derived from OECD and IMF, this current study discovered a positive and significant relationship between both short- and long-term interest rates in BRICS economies
Summary
The 2007-08 US financial crisis was regarded as one of the drastic global economic predicaments following the 1930 Great Depression. According to Kelikume (2016), this global economic crisis led to increased government borrowing from the domestic and international markets to finance the ongoing operation The effects of this increased government borrowing due to the 2007-08 global crisis raised the age-old debated regarding the linkage between government budget deficits, increased interest rates and shrinking investments. Mukhtar and Zakaria (2008) and Bayat, Kayhan and Senturk (2012) argued that there is no way that budget deficits and its proportion to GDP can affect interest rates Up to this current moment, no coherent agreement exists between scholars and policymakers regarding the link between fiscal deficits and interest rates. It can be of use to policymakers tackling snowballing debt and widening budget deficits, since they continue posing threats to economic stability
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
