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Nonlinear Alternatives to Unit Root Tests and Public Finances Sustainability: Some Evidence from Latin American and Caribbean Countries

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  • Georgios Chortareas
  • George Kapetanios
  • Merih Uctum

Abstract

We analyse the sustainability of government debt for Latin American and Caribbean countries employing unit-root tests with nonlinear alternative hypotheses and examine the robustness of our results against those from unit-root tests with breaks and threshold nonlinearities. We show that, in general support for sustainability substantially improves when nonlinear mean reversion is taken into account. We also find that the results obtained from applying various tests with nonlinear alternatives, although broadly consistent, are not identical. This suggests that reliance on a single unit-root test for assessing fiscal policy sustainability may be misleading. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2008.

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  • Georgios Chortareas & George Kapetanios & Merih Uctum, 2008. "Nonlinear Alternatives to Unit Root Tests and Public Finances Sustainability: Some Evidence from Latin American and Caribbean Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(5), pages 645-663, October.
  • Handle: RePEc:bla:obuest:v:70:y:2008:i:5:p:645-663
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    Cited by:

    1. Juan Carlos Cuestas, 2016. "Changes in sovereign debt dynamics in Central and Eastern Europe," Working Papers 16-10, Asociación Española de Economía y Finanzas Internacionales.
    2. Piergallini, Alessandro & Postigliola, Michele, 2013. "Non-linear budgetary policies: Evidence from 150 years of Italian public finance," Economics Letters, Elsevier, vol. 121(3), pages 495-498.
    3. Andrew Phiri, 2018. "How sustainable are fiscal budgets in the Kingdom of Swaziland?," Working Papers 1810, Department of Economics, Nelson Mandela University, revised Mar 2018.
    4. Piergallini, Alessandro, 2012. "Non-Linear Fiscal Regimes and Interest Rate Policy," MPRA Paper 42671, University Library of Munich, Germany.
    5. repec:ebl:ecbull:eb-17-00794 is not listed on IDEAS
    6. repec:mes:emfitr:v:51:y:2015:i:1:p:224-233 is not listed on IDEAS
    7. Vasudeva N. R. Murthy & Emmanuel Anoruo, 2009. "Are Per Capita Real GDP Series in African Countries Non-stationary or Non-linear? What does Empirical Evidence Reveal?," Economics Bulletin, AccessEcon, vol. 29(4), pages 2492-2504.
    8. Gabriella Deborah Legrenzi & Costas Milas, 2011. "Debt Sustainability and Financial Crises: Evidence from the GIIPS," CESifo Working Paper Series 3594, CESifo Group Munich.
    9. Cascio, Iolanda Lo, 2015. "A wavelet analysis of US fiscal sustainability," Economic Modelling, Elsevier, vol. 51(C), pages 33-37.
    10. Yoon, Gawon, 2012. "War and peace: Explosive U.S. public debt, 1791–2009," Economics Letters, Elsevier, vol. 115(1), pages 1-3.
    11. Abderrahim Chibi & Sidi Mohamed Chekouri & Mohamed Benbouziane, 2015. "Assessing Fiscal Sustainability in Algeria: a Nonlinear Approach," Working Papers 962, Economic Research Forum, revised Oct 2015.
    12. Gabriella Legrenzi & Costas Milas, 2012. "Long-Run Debt Sustainability and Threshold Adjustments: Non-Linear Empirical Evidence from the GIIPS," Economics Bulletin, AccessEcon, vol. 32(3), pages 2586-2593.
    13. 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.
    14. J. Ferris & Stanley Winer & Bernard Grofman, 2012. "Do departures from democratic accountability compromise the stability of public finances? Keynesianism, central banking, and minority governments in the Canadian system of party government, 1867–2009," Constitutional Political Economy, Springer, vol. 23(3), pages 213-243, September.
    15. repec:bla:coecpo:v:35:y:2017:i:1:p:201-215 is not listed on IDEAS
    16. Ruthira Naraidoo & Leroi Raputsoane, 2013. "Debt sustainability and financial crises in South Africa," Working Papers 201352, University of Pretoria, Department of Economics.
    17. Yoon, Gawon, 2012. "Explosive U.S. budget deficit," Economic Modelling, Elsevier, vol. 29(4), pages 1076-1080.
    18. Gabriella Deborah Legrenzi & Costas Milas, 2010. "Spend-and-Tax Adjustments and the Sustainability of the Government's Intertemporal Budget Constraint," CESifo Working Paper Series 2926, CESifo Group Munich.

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