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Periodically expanding discounted debt: a threat to fiscal policy sustainability?

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Author Info
Troy Davig (Department of Economics, The College of William and Mary, Williamsburg, USA)

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Abstract

This paper models the behaviour of discounted US debt using a Markov-switching time series model. The significance of modelling fiscal policy within this framework derives from the implications it has for long-term sustainability. The two-regime framework used in this paper identifies periods where the present value of US Federal debt is expanding versus periods when it is collapsing. Using an updated data series from Hamilton and Flavin (1986), a test is conducted to establish if the expanding periods pose a threat to the long-run sustainability of fiscal policy. For the USA, it is found that they do not. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.807
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File URL: http://qed.econ.queensu.ca:80/jae/2005-v20.7/
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 20 (2005)
Issue (Month): 7 ()
Pages: 829-840
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Handle: RePEc:jae:japmet:v:20:y:2005:i:7:p:829-840

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September. [Downloadable!] (restricted)
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  3. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Oxford University Press, vol. 29(3), pages 429-45, July.
  4. Haug, Alfred A, 1991. "Cointegration and Government Borrowing Constraints: Evidence for the United States," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 97-101, January.
  5. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-88, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eric M. Leeper, 2009. "Anchoring Fiscal Expectations," NBER Working Papers 15269, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Hess Chung & Eric M. Leeper, 2007. "What Has Financed Government Debt?," NBER Working Papers 13425, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Eric M. Leeper & Shu-Chun Susan Yang, 2006. "Dynamic Scoring: Alternative Financing Schemes," Caepr Working Papers 2006-022, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington. [Downloadable!]
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  4. Mark J. Holmes & Theodore Panagiotidis, 2009. "Cointegration and asymmetric adjustment: Some new evidence concerning the behaviour of the US current account," Discussion Paper Series 2009_11, Department of Economics, University of Macedonia, revised May 2009. [Downloadable!]
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  5. Lima, Luiz Renato Regis de Oliveira & Sampaio, Raquel Menezes Bezerra & Gaglianone, Wagner Piazza, 2006. "Debt ceiling and fiscal sustainability in Brazil: a quantile autoregression approach," Economics Working Papers (Ensaios Economicos da EPGE) 631, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
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  6. Ananda Jayawickrama & Tilak Abeysinghe, 2006. "Sustainability Of Fiscal Deficits: The U.S. Experience 1929-2004," SCAPE Policy Research Working Paper Series 05xx, National University of Singapore, Department of Economics, SCAPE. [Downloadable!]
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