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Public Debt Dynamics The Effects of Austerity, Inflation, and Growth Shocks

We study how macroeconomic shocks affect U.S. public debt dynamics using a VAR with debt feedback. Following a fiscal austerity shock, the debt ratio initially declines and then returns to its pre-shock path. Yet, the effect is not statistically significant. In a weak economic environment, the likel...

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Bibliographic Details
Main Author: Hasanov, Fuad
Other Authors: Cherif, Reda
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2012
Series:IMF Working Papers
Subjects:
Fiscal Policy
Public Finance
International Economics
Deflation
State Space Models
Debt
Econometrics
Fiscal Stance
Macroeconomics
Debt Management
Vector Autoregression
Debts, External
Price Level
National Budget, Deficit, And Debt: General
Econometric Analysis
Public Finance & Taxation
Exports And Imports
Dynamic Treatment Effect Models
Public Debt
Diffusion Processes
Dynamic Quantile Regressions
Debt Sustainability Analysis
Time-series Models
International Lending And Debt Problems
Debts, Public
External Debt
Prices
Sovereign Debt
Econometrics & Economic Statistics
Inflation
United States
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:We study how macroeconomic shocks affect U.S. public debt dynamics using a VAR with debt feedback. Following a fiscal austerity shock, the debt ratio initially declines and then returns to its pre-shock path. Yet, the effect is not statistically significant. In a weak economic environment, the likelihood of a self-defeating austerity shock is much higher than in normal times. An inflation shock only slightly reduces the debt ratio for a few quarters. A positive growth shock unambiguously lowers debt. In our specification, the debt ratio is stationary, whereas a VAR excluding debt may imply an explosive debt path
Physical Description:28 pages
ISBN:9781475510553

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