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Surplus–debt regressions

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  • Leeper, Eric M.
  • Li, Bing

Abstract

Single-equation estimates of fiscal reaction functions, which relate primary surpluses to past debt–GDP ratios and control variables, are subject to potentially serious simultaneity bias that can produce misleading inferences about fiscal behavior. Biases arise from failure to model the general equilibrium relationships between government debt and surpluses, relationships that bring in the forward-looking nature of nominal debt valuation and the role of monetary policy in that valuation.

Suggested Citation

  • Leeper, Eric M. & Li, Bing, 2017. "Surplus–debt regressions," Economics Letters, Elsevier, vol. 151(C), pages 10-15.
    • Handle: RePEc:eee:ecolet:v:151:y:2017:i:c:p:10-15
    DOI: 10.1016/j.econlet.2016.11.034
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    Cited by:

    1. Aldama, Pierre & Creel, Jérôme, 2019. "Fiscal policy in the US: Sustainable after all?," Economic Modelling, Elsevier, vol. 81(C), pages 471-479.
    2. John Cochrane, 2022. "The fiscal root of inflation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 22-40, July.
    3. Li, Bing & Pei, Pei & Tan, Fei, 2021. "Financial distress and fiscal inflation," Journal of Macroeconomics, Elsevier, vol. 70(C).
    4. Betty C. Daniel, Christos Shiamptanis, 2019. "Identifying Countries at Risk of Fiscal Crisis: High-Debt Developed Countries," LCERPA Working Papers bm0125, Laurier Centre for Economic Research and Policy Analysis, revised 2021.
    5. Eric M. Leeper, 2016. "Should Central Banks Care About Fiscal Rules?," NBER Working Papers 22800, National Bureau of Economic Research, Inc.
    6. repec:hal:spmain:info:hdl:2441/7suq9gqkp186e8d6eou29dipgk is not listed on IDEAS
    7. Bouabdallah, Othman & Jacquinot, Pascal & Patella, Valeria, 2023. "Monetary/fiscal policy regimes in post-war Europe," Working Paper Series 2871, European Central Bank.
    8. Aldama, Pierre & Creel, Jérôme, 2022. "Real-time fiscal policy responses in the OECD from 1997 to 2018: Procyclical but sustainable?," European Journal of Political Economy, Elsevier, vol. 73(C).
    9. Canofari, Paolo & Marini, Giancarlo & Piergallini, Alessandro, 2020. "Financial Crisis and Sustainability of US Fiscal Deficit: Indicators or Tests?," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 192-204.

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    More about this item

    Keywords

    Fiscal policy; Fiscal sustainability; Monetary policy;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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