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U.S. Deficit Sustainability: A New Approach Based on Multiple Endogenous Breaks

Recent empirical work has questioned the consistency of U.S. fiscal policy with an intertemporal budget constraint. Empirical results have tended to indicate that the deficit process has undergone at least one structural shift during recent decades, with the deficit becoming either unsustainable or sustainable in only a weak sense in the post-shift period. In this paper, we re-examine sustainability using a new approach, based on a cointegration model with multiple endogenous breaks.

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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 1/98.

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Length: 28 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:msh:ebswps:1998-1
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