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Debt ceiling and fiscal sustainability in Brazil: a quantile autoregression approach

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  • Lima, Luiz Renato Regis de Oliveira
  • Sampaio, Raquel Menezes Bezerra
  • Gaglianone, Wagner Piazza

Abstract

In this paper we investigate fiscal sustainability by using a quantile autoregression (QAR) model. We propose a novel methodology to separate periods of nonstationarity from stationary ones, allowing us to identify various trajectories of public debt that are compatible with fiscal sustainability. We use such trajectories to construct a debt ceiling, that is, the largest value of public debt that does not jeopardize long-run fiscal sustainability. We make an out-of-sample forecast of such a ceiling and show how it could be used by Policy makers interested in keeping the public debt on a sustainable path. We illustrate the applicability of our results using Brazilian data.

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 631.

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Date of creation: 01 Nov 2006
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Handle: RePEc:fgv:epgewp:631

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Cited by:
  1. Lee, Cheng-Feng & Hu, Te-Chung & Li, Ping-Cheng & Tsong, Ching-Chuan, 2013. "Asymmetric behavior of unemployment rates: Evidence from the quantile covariate unit root test," Japan and the World Economy, Elsevier, Elsevier, vol. 28(C), pages 72-84.
  2. Tilak Abeysinghe & Ananda Jayawickrama, 2013. "A segmented trend model to assess fiscal sustainability: The US experience 1929–2009," Empirical Economics, Springer, Springer, vol. 44(3), pages 1129-1141, June.
  3. Lee, Chien-Chiang & Zeng, Jhih-Hong, 2011. "Revisiting the relationship between spot and futures oil prices: Evidence from quantile cointegrating regression," Energy Economics, Elsevier, Elsevier, vol. 33(5), pages 924-935, September.
  4. Boengiu, Tudor & Morar Triandafil, Cristina & Morar Triandafil, Adrian, 2011. "Debt Ceiling and External Debt Sustainability in Romania: A Quantile Autoregression Model," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 15-29, December.
  5. Mário Jorge Mendonça & Cláudio H. dos Santos, 2008. "Revisitando a Função de Reação Fiscal no Brasil Pós-Real: Uma Abordagem de Mudanças de Regime," Discussion Papers, Instituto de Pesquisa Econômica Aplicada - IPEA 1337, Instituto de Pesquisa Econômica Aplicada - IPEA.

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