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SSRN Electronic Journal
Article . 2018 . Peer-reviewed
Data sources: Crossref
EconStor
Research . 2018
Data sources: EconStor
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Fiscal Regimes and the (Non)Stationarity of Debt

Authors: Hollmayr, Josef;

Fiscal Regimes and the (Non)Stationarity of Debt

Abstract

This paper analyzes the sustainability of fiscal debt contingent on fiscal policy operating in two fiscal regimes. The first regime is characterized by active policy (not reacting to debt) and the other by passive fiscal policy (reacting to debt). The average duration for which either regime can be pursued in order to arrive at a long-run stable solution is dependent on the steady-state debt-to-GDP ratio and thus determines the cutoff point beyond which debt is non-stationary. We find that the longer an active policy regime is in force or, equivalently, the more likely fiscal policy is to remain in this regime, the lower the steady state debt-to-GDP ratio must be. This has repercussions for the overall business cycle, implying a higher volatility of inflation and output the longer fiscal policy is active for any given equilibrium debt-to-GDP level. Using the Markov-switching DSGE-model as the data generating process it is possible to apply the test by Bohn (1998) and find that it is prone to type 2 errors.

Related Organizations
Keywords

C62, Fiscal Policy, E61, ddc:330, DSGE, Markov-Switching, Debt Sustainability, E62

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
0
Average
Average
Average
bronze