The community reinvestment act and real municipal bond interest rate yields in the united states: evidence from the municipal bond market

Abstract

This exploratory empirical study investigates the validity of a claim by the U.S. Office of the Comptroller of the Currency (2014) that The Community Reinvestment Act of 1977 may have acted to reduce the interest rate on high grade municipal bonds in the United States. The model also investigates the interest-rate effect of the federal budget deficit (as well as various other control variables). The estimates for the 1973–2016 study period reveal that The Community Reinvestment Act of 1977 may well have reduced the ex post real interest rate yield on high grade municipals.. The evidence also implies that the ex post real interest rate yield on high grade municipals has been an increasing function of the federal budget deficit (expressed as a percent of GDP). Federal public policy actions appear to exercise very important impacts on the market for municipal bonds.