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Are Adjustments in the U.S. Budget Deficit Asymmetric? Another Look at Sustainability

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  • James Payne
  • Hassan Mohammadi

Abstract

This study examines the sustainability along with the structural stability of the U.S. federal budget deficit over the post World War II period. Allowing for an endogenously determined structural break in 1982:1, tests of unit roots based on Perron's [ 1997 ] methodology suggest a stationary and sustainable budget deficit. Moreover, threshold autoregressive and momentum threshold autoregressive models do not detect asymmetries in the response of the budget deficit to deviations from its long-run trend. Copyright International Atlantic Economic Society 2006

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File URL: http://hdl.handle.net/10.1007/s11293-006-6116-8
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Bibliographic Info

Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 34 (2006)
Issue (Month): 1 (March)
Pages: 15-22

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Handle: RePEc:kap:atlecj:v:34:y:2006:i:1:p:15-22

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References

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  1. Enders, Walter & Granger, C. W. J., 1998. "Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Staff General Research Papers 1388, Iowa State University, Department of Economics.
  2. James Payne, 1997. "International evidence on the sustainability of budget deficits," Applied Economics Letters, Taylor & Francis Journals, vol. 4(12), pages 775-779.
  3. Ramsey, James B & Rothman, Philip, 1996. "Time Irreversibility and Business Cycle Asymmetry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 1-21, February.
  4. Oscar Bajo-Rubio & Carmen Díaz-Roldán & Vicente Esteve, 2003. "Searching for Threshold Effects in the Evolution of Budget Deficits: An Application to the Spanish Case," Economic Working Papers at Centro de Estudios Andaluces E2003/29, Centro de Estudios Andaluces.
  5. Martin, G.M., 1998. "U.S. Deficit Sustainability: A New Approach Based on Multiple Endogenous Breaks," Monash Econometrics and Business Statistics Working Papers 1/98, Monash University, Department of Econometrics and Business Statistics.
  6. Bertola, Giuseppe & Drazen, Allan, 1991. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," CEPR Discussion Papers 599, C.E.P.R. Discussion Papers.
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  10. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," CEPR Discussion Papers 2374, C.E.P.R. Discussion Papers.
  11. David W. Wilcox, 1987. "The substainability of government deficits: implications of the present- value borrowing constraint," Working Paper Series / Economic Activity Section 77, Board of Governors of the Federal Reserve System (U.S.).
  12. Bradley T. Ewing & James E. Payne & Mark A. Thompson & Omar M. Al-Zoubi, 2006. "Government Expenditures and Revenues: Evidence from Asymmetric Modeling," Southern Economic Journal, Southern Economic Association, vol. 73(1), pages 190–200, July.
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  16. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-17, October.
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Citations

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Cited by:
  1. Chen, Shyh-Wei, 2014. "Smooth transition, non-linearity and current account sustainability: Evidence from the European countries," Economic Modelling, Elsevier, vol. 38(C), pages 541-554.
  2. Chen, Shyh-Wei, 2014. "Testing for fiscal sustainability: New evidence from the G-7 and some European countries," Economic Modelling, Elsevier, vol. 37(C), pages 1-15.
  3. Trachanas, Emmanouil & Katrakilidis, Constantinos, 2013. "Fiscal deficits under financial pressure and insolvency: Evidence for Italy, Greece and Spain," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 730-749.
  4. Mohammadi, Hassan, 2009. "Electricity prices and fuel costs: Long-run relations and short-run dynamics," Energy Economics, Elsevier, vol. 31(3), pages 503-509, May.

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