Title

Defense Spending Cutbacks and Real Interest Rates in the Neoclassical One-Sector and Two-Sector Models

Publication Type

Journal Article

Publication Date

1992

Abstract

This paper uses the neoclassical one-sector and two-sector models to examine the behavior of real interest rates in response to cutbacks on defense spending on capital goods and army personnel. It is demonstrated that while a permanent decline in defense spending on capital goods and military personnel leaves the term structure unaffected in the one-sector model, the two-sector model predicts that the short and medium term real interest rates rise to give a downward-sloping yield curve when the capital goods producing sector is relatively labor-intensive.

Discipline

Economics

Research Areas

Applied Microeconomics

Publication

Economics Letters

Volume

39

First Page

443

Last Page

448

ISSN

0165-1765

Identifier

10.1016/0165-1765(92)90183-y

Publisher

Elsevier

Additional URL

http://dx.doi.org/10.1016/0165-1765(92)90183-y

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