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Assessing The Mean Reversion Behavior Of Fiscal Policy: The Case Of Asian Countries

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Author Info
Evan Lau (UNIMAS)
Ahmad Zubaidi Baharumshah (UPM)

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Abstract

Maintaining sustainable fiscal policy has been increasingly important in the scope of economists and the policy makers as the key requirement of macroeconomic stability and sustainability of an economy. Without exception, the issue of fiscal sustainability also being in the spotlight for the developing countries especially in Asian, after the financial shock in 1997. Motivated by this development, this paper test the mean-reverting behavior of fiscal position by adopting families of univariate and panel unit root tests for the panel of ten Asian countries. Univariate unit root tests indicates that the fiscal position follows a non-stationary process of I(1) while mean reverting property were detected when we adopt the commonly used panel unit roots techniques. By utilizing the series-specific panel unit root test developed by Breuer et al. (2002, SURADF) that allows one to test for the presence of non-stationarity within individual cross sectional of the panel, we found that four out of ten countries in the panel are stationary suggesting little evidence of fiscal sustainability in Asian. These results also confirm the complexity properties of the panel data.

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Paper provided by EconWPA in its series Macroeconomics with number 0504002.

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Date of creation: 01 Apr 2005
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Handle: RePEc:wpa:wuwpma:0504002

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Related research
Keywords: fiscal policy; mean reversion; sustainability; government intertemporal budget constraint; unit root tests; Asian;

Find related papers by JEL classification:
E - Macroeconomics and Monetary Economics

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