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Public Debt Dynamics and Debt Feedback

  • Reda, Cherif
  • Fuad, Hasanov

We study the dynamics of U.S. public debt in a parsimonious VAR. We find that including debt feedback ensures the stationarity of debt while standard VARs excluding debt may imply an explosive debt path. We also find that the response of debt to inflation or interest shocks is not robust and depends on the policy regime. The recent past suggests that a positive shock to inflation increases debt while the same to interest rate decreases it. Positive shocks to growth and primary surplus unambiguously reduce debt.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27918.

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Date of creation: Dec 2010
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Handle: RePEc:pra:mprapa:27918
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  1. Hess Chung & Eric M. Leeper, 2007. "What Has Financed Government Debt?," NBER Working Papers 13425, National Bureau of Economic Research, Inc.
  2. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  3. Ricardo M. Sousa & António Afonso, 2009. "The Macroeconomic Effects of Fiscal Policy in Portugal: a Bayesian SVAR Analysis," NIPE Working Papers 3/2009, NIPE - Universidade do Minho.
  4. Carlo Favero & Francesco Giavazzi, 2009. "How large are the effects of tax changes?," Working Papers 350, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Gernot Müller & Giancarlo Corsetti & André Meier, 2009. "Fiscal Stimulus with Spending Reversals," IMF Working Papers 09/106, International Monetary Fund.
  6. Thomas J. Sargent & George J. Hall, 2010. "Interest rate risk and other determinants of post WWII U.S. government debt/GDP dynamics," 2010 Meeting Papers 208, Society for Economic Dynamics.
  7. Christina D. Romer & David H. Romer, 2007. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," NBER Working Papers 13264, National Bureau of Economic Research, Inc.
  8. Roberto Perotti, 2004. "Estimating the effects of fiscal policy in OECD countries," Working Papers 276, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  9. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "Fiscal Stimulus with Spending Reversals," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 878-895, November.
  10. repec:oup:qjecon:v:117:y:2002:i:4:p:1329-1368 is not listed on IDEAS
  11. J. Boissinot & C. L'Angevin & B. Monfort, 2004. "Public Debt Sustainability: Some Results on the French Case," Documents de Travail de la DESE - Working Papers of the DESE g2004-10, Institut National de la Statistique et des Etudes Economiques, DESE.
  12. Reinhart, Carmen M. & Rogoff, Kenneth, 2010. "Growth in a Time of Debt," CEPR Discussion Papers 7661, C.E.P.R. Discussion Papers.
  13. Barro, Robert J, 1980. "Federal Deficit Policy and the Effects of Public Debt Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 747-62, November.
  14. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  15. Carlo Favero & Francesco Giavazzi, 2007. "Debt and the effects of fiscal policy," Working Papers 07-4, Federal Reserve Bank of Boston.
  16. Vito Polito & Mike Wickens, 2007. "Measuring the Fiscal Stance," Discussion Papers 07/14, Department of Economics, University of York.
  17. Aizenman, Joshua & Marion, Nancy, 2011. "Using inflation to erode the US public debt," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 524-541.
  18. Oya Celasun & Xavier Debrun & Jonathan David Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach," IMF Working Papers 06/67, International Monetary Fund.
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