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Debt ceiling and fiscal sustainability in Brazil: a quantile autoregression approach

  • Lima, Luiz Renato Regis de Oliveira
  • Sampaio, Raquel Menezes Bezerra
  • Gaglianone, Wagner Piazza

In this paper we investigate fiscal sustainability by using a quantile autoregression (QAR) model. We propose a novel methodology to separate periods of nonstationarity from stationary ones, which allows us to identify various trajectories of public debt that are compatible with fiscal sustainability. We use such trajectories to construct a debt ceiling, that is, the largest value of public debt that does not jeopardize long-run fiscal sustainability. We make out-of-sample forecast of such a ceiling and show how it could be used by Policy makers interested in keeping the public debt on a sustainable path. We illustrate the applicability of our results using Brazilian data.

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 631.

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Date of creation: 01 Nov 2006
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Handle: RePEc:fgv:epgewp:631
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