IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Feedback covariates unit root tests : an application to the sustainability of fiscal policy

  • Fève, Patrick
  • Hénin, Pierre-Yves
  • Jolivaldt, Philippe

Sustainability tests often ignore the joint dynamics of stock and flow variables. This paper shows that such a practice leads to inappropriate statistical inference, and that taking into account this joint dynamics when testing for unit root induces large power gains. This paper introduces a new statistics denoted FADF (Feedback augmented Dickey Fuller), which fully combines feedback effects and covariates. The paper derives the limit distribution of the test statistic and comments on the asymptotic power functions. A simulation study and an empirical application based on US public debt sustainability illustrate the potential of this approach.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepremap.fr/depot/couv_orange/co9810.ps
Download Restriction: no

File URL: http://www.cepremap.fr/depot/couv_orange/co9810.pdf
Download Restriction: no

Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Couverture Orange) with number 9810.

as
in new window

Length: 36 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:cpm:cepmap:9810
Contact details of provider: Postal: 48 boulevard Jourdan - 75014 PARIS
Phone: +33(0) 1 43 13 62 30
Fax: +33(0) 1 43 13 62 32
Web page: http://www.cepremap.fr/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Muellbauer, John N J, 1996. "Income Persistence and Macro-Policy Feedbacks in the U.S," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 703-33, November.
  2. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September.
  3. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220 National Bureau of Economic Research, Inc.
  4. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-17, October.
  5. Davidson, Russell & MacKinnon, James G, 1998. "Graphical Methods for Investigating the Size and Power of Hypothesis Tests," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(1), pages 1-26, January.
  6. Cavanagh, Christopher L. & Elliott, Graham & Stock, James H., 1995. "Inference in Models with Nearly Integrated Regressors," Econometric Theory, Cambridge University Press, vol. 11(05), pages 1131-1147, October.
  7. Bruce E. Hansen, 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Boston College Working Papers in Economics 300., Boston College Department of Economics.
  8. Smith, Gregor W & Zin, Stanley E, 1991. "Persistent Deficits and the Market Value of Government Debt," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(1), pages 31-44, Jan.-Marc.
  9. Christiano, Lawrence J. & Eichenbaum, Martin, 1990. "Unit roots in real GNP: Do we know, and do we care?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 7-61, January.
  10. Bohn, H., 1990. "The Sutainability Of Budget Deficits In A Stochastic Economy," Weiss Center Working Papers 6-90, Wharton School - Weiss Center for International Financial Research.
  11. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August.
  12. Haug, Alfred A, 1995. "Has Federal Budget Deficit Policy Changed in Recent Years?," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 104-18, January.
  13. Peter C.B. Phillips, 1988. "Optimal Inference in Cointegrated Systems," Cowles Foundation Discussion Papers 866R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1989.
  14. Bohn, Henning, 1991. "Budget balance through revenue or spending adjustments? : Some historical evidence for the United States," Journal of Monetary Economics, Elsevier, vol. 27(3), pages 333-359, June.
  15. repec:cup:etheor:v:11:y:1995:i:5:p:1148-71 is not listed on IDEAS
  16. Bharat Trehan & Carl E. Walsh, 1987. "Common trends, the government's budget constraint, and revenue smoothing," Working Papers in Applied Economic Theory 87-11, Federal Reserve Bank of San Francisco.
  17. Wickens, M. R. & Uctum, Merih, 1993. "The sustainability of current account deficits : A test of the US intertemporal budget constraint," Journal of Economic Dynamics and Control, Elsevier, vol. 17(3), pages 423-441, May.
  18. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-45, July.
  19. Robert Holzmann & Yves Hervé & Roland Demmel, 1996. "The maastricht fiscal criteria: Required but ineffective?," Empirica, Springer, vol. 23(1), pages 25-58, February.
  20. Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers 869R, Cowles Foundation for Research in Economics, Yale University, revised Apr 1989.
  21. repec:cup:etheor:v:11:y:1995:i:5:p:1131-47 is not listed on IDEAS
  22. Peter C.B. Phillips, 1986. "Towards a Unified Asymptotic Theory for Autoregression," Cowles Foundation Discussion Papers 782R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1986.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpm:cepmap:9810. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stéphane Adjemian)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.