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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- Domenech, Rafael & Taguas, David & Varela, Juan, 2000. "The effects of budget deficit on national saving in the OECD," Economics Letters, Elsevier, vol. 69(3), pages 377-383, December.
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- Becker, Torbjorn, 1997. "An investigation of Ricardian equivalence in a common trends model," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 405-431, August.
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- Runkle, David E, 1987. "Vector Autoregressions and Reality," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 437-442, October.
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