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Assessing fiscal sustainability subject to policy changes: a Markov switching cointegration approach

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  • Vasco Gabriel

    ()

  • Pataaree Sangduan

Abstract

We propose a Markov switching cointegration approach to assess long run fi?scal sustainability. This method allows us to simultaneously: 1) test for cointegration in the presence of signifi?cant ?fiscal policy changes; 2) assess the type of fi?scal regime (whether strongly/weakly sustainable or unsustainable) that a country experienced at a given period and 3) analyse the timing of the transition between the estimated regime types. Given its flexibility, our approach enables us to uncover a richer and more complex dynamics in the analysis of fi?scal sustainability, which standard linear cointegration methods fail to capture.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 41 (2011)
Issue (Month): 2 (October)
Pages: 371-385

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Handle: RePEc:spr:empeco:v:41:y:2011:i:2:p:371-385

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Keywords: Fiscal sustainability; Markov switching; Cointegration; C22; E62; H60;

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Citations

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Cited by:
  1. Tilak Abeysinghe & Ananda Jayawickrama, 2013. "A segmented trend model to assess fiscal sustainability: The US experience 1929–2009," Empirical Economics, Springer, vol. 44(3), pages 1129-1141, June.
  2. Ricardo M. Sousa, 2010. "Collateralizable Wealth, Asset Returns, and Systemic Risk: International Evidence," NIPE Working Papers 15/2010, NIPE - Universidade do Minho.
  3. Anton Velinov, 2014. "Assessing the Sustainability of Government Debt: On the Different States of the Debt/GDP Process," Discussion Papers of DIW Berlin 1359, DIW Berlin, German Institute for Economic Research.
  4. 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.

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