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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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File URL: https://mpra.ub.uni-muenchen.de/27918/1/MPRA_paper_27918.pdf
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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. Roberto Perotti, 2004. "Estimating the effects of fiscal policy in OECD countries," Working Papers 276, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Aizenman, Joshua & Marion, Nancy, 2009. "Using Inflation to Erode the U.S. Public Debt," Santa Cruz Department of Economics, Working Paper Series qt6xf174rs, Department of Economics, UC Santa Cruz.
  3. 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.
  4. George J. Hall & Thomas J. Sargent, 2010. "Interest rate risk and other determinants of post WWII U.S. government debt/GDP dynamics," Working Papers 01, Brandeis University, Department of Economics and International Businesss School.
  5. 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.
  6. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  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. Vito Polito & Mike Wickens, 2007. "Measuring the Fiscal Stance," Discussion Papers 07/14, Department of Economics, University of York.
  9. Carlo Favero & Francesco Giavazzi, 2007. "Debt and the effects of fiscal policy," Working Papers 317, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Hess Chung & Eric M. Leeper, 2007. "What Has Financed Government Debt?," NBER Working Papers 13425, National Bureau of Economic Research, Inc.
  11. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," NBER Working Papers 15639, National Bureau of Economic Research, Inc.
  12. António Afonso & Ricardo Sousa, 2011. "The macroeconomic effects of fiscal policy in Portugal: a Bayesian SVAR analysis," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(1), pages 61-82, April.
  13. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  14. Corsetti, Giancarlo & Meier, André & Müller, Gernot, 2009. "Fiscal Stimulus with spending reversals," CEPR Discussion Papers 7302, C.E.P.R. Discussion Papers.
  15. 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.
  16. Robert J. Barro, 1980. "Federal Deficit Policy and the Effects of Public Debt Shocks," NBER Working Papers 0443, National Bureau of Economic Research, Inc.
  17. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
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