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Recurrent explosive behaviour of debt-to-GDP ratio

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  • Bystrov, Victor
  • Mackewicz, Michał

Abstract

In this paper the recurrent explosive behaviour of debt-to-GDP ratio is tested in three countries with a long fiscal record: Sweden, the UK and the US. The testing is based on the method developed by Phillips et al. (2015) which is new in this context. The method allows us to avoid the size distortion problem of the traditional tests of fiscal sustainability and makes it possible to examine potential unsustainability as a transitory rather than permanent phenomenon. It has been demonstrated that in the economies analyzed, long periods of fiscal sustainability were interrupted by relatively short periods when the debt-to-GDP ratio had explosive dynamics.

Suggested Citation

  • Bystrov, Victor & Mackewicz, Michał, 2016. "Recurrent explosive behaviour of debt-to-GDP ratio," MPRA Paper 75203, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:75203
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    References listed on IDEAS

    as
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    3. António Afonso & Christophe Rault, 2010. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 731-755, January.
    4. Trehan, Bharat & Walsh, Carl E, 1991. "Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 206-223, May.
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    More about this item

    Keywords

    Public debt; Sustainability; Unit root tests; Explosiveness;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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