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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Format: | eBook |
Language: | English |
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Washington, D.C.
International Monetary Fund
2012
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Series: | IMF Working Papers
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Online Access: | |
Collection: | International Monetary Fund - Collection details see MPG.ReNa |
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 |
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Physical Description: | 28 pages |
ISBN: | 9781475510553 |