New Methods for Testing the Sustainability of Government Debt
Recently, several countries, which include not only developing, but also developed ones, face the severe sovereign crisis. In this circumstance, we introduce the new method for testing the sustainability of government debt. Previous studies which investigate the sustainability of government debt satisfies or not to test the Transversality condition of government debt. But, these studies are criticized by Bohn (1998, 2008) as "ad-hoc" sustainability, because the situation which satisfies transversality condition (in other words, the intertemporal government budget constraint is bind) is merely chance. Bohn (1998, 2008) suggest the sufficiency condition which satisfies the sustainability of government debt if the debt stabilization rule of government debt and primary surplus is satisfied. But, we do not know whether the government debt is really sustainable, at least in view of "Locally Ricardian" which Woodford suggests. Therefore we connect these discussions to apply the covariate augmented Dickey-Fuller (CADF) test to the government debt, and check whether the government debt is unit root or not using U.S data. Moreover, we apply the estimation method Hamilton and Flavin (1986) with covariates to check whether "Globally Ricardian" is really satisfied. In our results, U.S cannot obtain the sustainability at all time, even if the policy stabilization rule a la Bohn (1998, 2008) is satisfied. We show the sustainability rule is not sufficient condition empirically. On the other hand, "Globally Ricardian" is satisfied, and then the result is consistent with Woodford (1995, 1998).
|Date of creation:||Nov 2011|
|Date of revision:|
|Contact details of provider:|| Postal: 2-15-45, Mita, Minato-ku, Tokyo 108-8345|
Web page: http://ies.keio.ac.jp/old_project/old/gcoe-econbus/
More information through EDIRC
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.:
- Hansen, Bruce E., 1995.
"Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power,"
Cambridge University Press, vol. 11(05), pages 1148-1171, October.
- 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.
- Elliott, Graham & Jansson, Michael, 2003.
"Testing for unit roots with stationary covariates,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 75-89, July.
- Graham Elliott & Michael Jansson, . "Testing for Unit Roots with Stationary Covariates," Economics Working Papers 2000-6, Department of Economics and Business Economics, Aarhus University.
- Elliott, Graham & Jansson, Michael, 2002. "Testing for Unit Roots with Stationary Covariates," University of California at San Diego, Economics Working Paper Series qt4v35s2gv, Department of Economics, UC San Diego.
- Elliott, Graham & Jansson, Michael, 2000. "Testing for Unit Roots with Stationary Covariances," University of California at San Diego, Economics Working Paper Series qt47k7z69n, Department of Economics, UC San Diego.
- Fossati, Sebastian, 2012.
"Covariate unit root tests with good size and power,"
Computational Statistics & Data Analysis,
Elsevier, vol. 56(11), pages 3070-3079.
- Fossati, Sebastian, 2011. "Covariate Unit Root Tests with Good Size and Power," Working Papers 2011-4, University of Alberta, Department of Economics.
- Jomana Amara & David Papell, 2006. "Testing for Purchasing Power Parity using stationary covariates," Applied Financial Economics, Taylor & Francis Journals, vol. 16(1-2), pages 29-39.
When requesting a correction, please mention this item's handle: RePEc:kei:dpaper:2011-020. 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: (Global COE Program Office)
If references are entirely missing, you can add them using this form.