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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 Stance
Inflation
Public Debt
Econometric Analysis
Dynamic Treatment Effect Models
Public Finance & Taxation
Deflation
Debt Management
Debts, Public
Fiscal Policy
Debt
Diffusion Processes
Exports And Imports
International Economics
International Lending And Debt Problems
Debts, External
External Debt
Vector Autoregression
Time-series Models
Sovereign Debt
Price Level
Prices
Macroeconomics
Dynamic Quantile Regressions
Econometrics
National Budget, Deficit, And Debt: General
Econometrics & Economic Statistics
State Space Models
Public Finance
Debt Sustainability Analysis
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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