Figure 4 displays the effects of a spending shock on the 10-year nominal interest rate. In
the whole sample, the interest rate increases on impact everywhere, but by little. After
this, it falls steadily in the US, to a minimum of -.4 after about 3 years. But once again this behavior is not typical. In the other countries, the interest rate increases over time,
to a significant maximum after 4 to 5 years of about .9 in the UK and between .3 and .4
in the other countries. But this process takes time: after 2 years, the interest rate is .6 in
the UK, .2 in Australia, and close to 0 in the other two countries.