Does The Constraint In The Matrix Of Long Run Effects Bias The Ricardian Equivalence Test?
The purpose of this paper is to test the Ricardian Equivalence Hypothesis REH by estimating a SVAR model. In this framework, we separate the co-movements of saving rate and budget deficit rate into two shocks, associated with structural parameters, as if we were looking for ‘‘two needles in haystack’’. We avoid imposing formal short and long run constraints, because these may overestimate the compensation rate and bias the estimation of structural multipliers. Our results suggest that REH is applicable to Moroccan economy, since private saving compensates a large fraction i.e. 90% of the shock in budget deficit, which may handicap the economic development.
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Volume (Year): 7 (2007)
Issue (Month): 1 ()
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- David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis.
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"Finite Lifetimes and the Effects of Budget Deficits on National Savings,"
434, Massachusetts Institute of Technology (MIT), Department of Economics.
- Poterba, James M. & Summers, Lawrence H., 1987. "Finite lifetimes and the effects of budget deficits on national saving," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 369-391, September.
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