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Debt Ceiling and External Debt Sustainability in Romania: A Quantile Autoregression Model

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  • Boengiu, Tudor

    ()
    (Academy of Economic Studies)

  • Morar Triandafil, Cristina

    ()
    (University of Finance and Banking)

  • Morar Triandafil, Adrian

    ()
    (Romanian Academy)

Abstract

In this paper we investigate the external debt sustainability using a quantile autoregression (QAR) model. QAR is a new type of econometric models used to separate periods of nonstationarity from the stationarity ones. This kind of model allows us to identify various trajectories of external debt that are compatible with indebtness sustainability. We use such trajectories to construct a debt ceiling, that is, the largest value of external debt that does not jeopardize long-run indebtness sustainability. We make out-of-sample forecast of such a ceiling and we present the debt ceiling as a “debt-warning system” which could be used by policy makers interested in keeping the external debt on a sustainable path. We illustrate the applicability of such econometric tool using Romanian data. Also, we used the R programming language for part of our statistical computing and graphics presented in this study.

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Bibliographic Info

Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2011)
Issue (Month): 4 (December)
Pages: 15-29

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Handle: RePEc:rjr:romjef:v::y:2011:i:4:p:15-29

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Related research

Keywords: external debt; quantile autoregression; local sustainability; global sustainability; gross domestic product;

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  1. Lima, Luiz Renato & Gaglianone, Wagner Piazza & Sampaio, Raquel M.B., 2008. "Debt ceiling and fiscal sustainability in Brazil: A quantile autoregression approach," Journal of Development Economics, Elsevier, vol. 86(2), pages 313-335, June.
  2. Bruce E. Hansen, 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Boston College Working Papers in Economics 300., Boston College Department of Economics.
  3. Merih Uctum & Michael Wickens, 1996. "Debt and deficit ceilings, and sustainability of fiscal policies: an intertemporal analysis," Research Paper 9615, Federal Reserve Bank of New York.
  4. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 143-156, Fall.
  5. Efstathios Paparoditis & Dimitris N. Politis, 2003. "Residual-Based Block Bootstrap for Unit Root Testing," Econometrica, Econometric Society, vol. 71(3), pages 813-855, 05.
  6. Lima, Luiz Renato Regis de Oliveira & Sampaio, Raquel Menezes Bezerra, 2005. "The Asymmetric Behavior of the U.S. Public Debt," Economics Working Papers (Ensaios Economicos da EPGE) 593, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  7. Koenker, Roger & Xiao, Zhijie, 2006. "Quantile Autoregression," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 980-990, September.
  8. Roger Koenker & Zhijie Xiao, 2004. "Unit Root Quantile Autoregression Inference," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 775-787, January.
  9. Roger Koenker & Zhijie Xiao, 2002. "Inference on the Quantile Regression Process," Econometrica, Econometric Society, vol. 70(4), pages 1583-1612, July.
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