[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/18797.html
   My bibliography  Save this paper

Fiscal Stability of High-Debt Nations under Volatile Economic Conditions

Author

Listed:
  • Robert E. Hall
Abstract
Using a recursive empirical model of the real interest rate, GDP growth, and the primary government deficit in the U.S., I solve for the ergodic distribution of the debt/GDP ratio. If such a distribution exists, the government is satisfying its intertemporal budget constraint. One key finding is that historical fiscal policy would bring the current high debt ratio back to its normal level of 0.35 over the coming decade. Forecasts of continuing increases in the ratio over the decade make the implicit assumption that fiscal policy has shifted dramatically. In the variant of the model that matches the forecast, the government would not satisfy its intertemporal budget constraint if the policy was permanent. The willingness of investors to hold U.S. government debt implies a belief that the high-deficit policy is transitory.

Suggested Citation

  • Robert E. Hall, 2013. "Fiscal Stability of High-Debt Nations under Volatile Economic Conditions," NBER Working Papers 18797, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18797
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w18797.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-271, February.
    2. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guo, Minjie & McDermott, John, 2020. "Sovereign debt and the length of economic depressions," Economic Modelling, Elsevier, vol. 90(C), pages 79-91.
    2. Jean Barthélemy & Guillaume Plantin, 2018. "Fiscal and Monetary Regimes: A Strategic Approach," Working Papers hal-03393134, HAL.
    3. Sang Hyeon Lee & Doo Bong Han & Vincenzina Caputo & Rodolfo M. Nayga Jr., 2015. "Consumers’ Valuation for a Reduced Salt Product: A Nonhypothetical Choice Experiment," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 63(4), pages 563-582, December.
    4. Piero Ferri & Fabio Tramontana, 2018. "Debt Persistence in a Deflationary Environment: A Regime-Switching Model," Computational Economics, Springer;Society for Computational Economics, vol. 52(2), pages 421-442, August.
    5. Yuanting Xia & Wenxiu Hu & Zhenxing Su, 2022. "Economic Policy Uncertainty, Social Financing Scale and Local Fiscal Sustainability: Evidence from Local Governments in China," Sustainability, MDPI, vol. 14(12), pages 1-19, June.
    6. Zhang, Ailian & Pan, Mengmeng & Liu, Bai & Cao, Xianbin, 2023. "Do high-speed rail (HSR) station and airport affect local government debt risk? Evidence from China," Transport Policy, Elsevier, vol. 134(C), pages 41-51.
    7. repec:grz:wpaper:2015-02 is not listed on IDEAS
    8. Maximilian Goedl & Christoph Zwick, 2018. "Assessing the stochastic stability of public debt: the case of Austria," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(3), pages 559-585, August.
    9. Jasper Lukkezen & Hugo Rojas-Romagosa, 2016. "A Stochastic Indicator for Sovereign Debt Sustainability," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(3), pages 229-267, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Harashima, Taiji, 2017. "Should a Government Fiscally Intervene in a Recession and, If So, How?," MPRA Paper 78053, University Library of Munich, Germany.
    2. Reicher, Claire, 2014. "Systematic fiscal policy and macroeconomic performance: A critical overview of the literature," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-37.
    3. Harashima, Taiji, 2006. "The Sustainability of Budget Deficits in an Inflationary Economy," MPRA Paper 905, University Library of Munich, Germany.
    4. Chadha, J.S. & Nolan, C., 2003. "On the Interaction of Monetary and Fiscal Policy," Cambridge Working Papers in Economics 0303, Faculty of Economics, University of Cambridge.
    5. Jorg Bibow, 2004. "Fiscal Consolidation: Contrasting Strategies & Lessons From International Experiences," Economics Working Paper Archive wp_400, Levy Economics Institute.
    6. D’Erasmo, P. & Mendoza, E.G. & Zhang, J., 2016. "What is a Sustainable Public Debt?," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2493-2597, Elsevier.
    7. Creel, Jerome & Bihan, Herve Le, 2006. "Using structural balance data to test the fiscal theory of the price level: Some international evidence," Journal of Macroeconomics, Elsevier, vol. 28(2), pages 338-360, June.
    8. Evans, Martin, 2013. "Global Imbalances, Risk, and the Great Recession," MPRA Paper 52363, University Library of Munich, Germany.
    9. Martin, Fernando M., 2015. "Debt, inflation and central bank independence," European Economic Review, Elsevier, vol. 79(C), pages 129-150.
    10. Hassler, J. & Lindbeck, A., 1997. "Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems," Papers 631, Stockholm - International Economic Studies.
    11. Jérôme Creel & Günes Kamber, 2004. "Debt, deficits and inflation on the road to the EU: the case of Turkey," Revue de l'OFCE, Presses de Sciences-Po, vol. 91(5), pages 157-174.
    12. Marattin, Luigi & Marzo, Massimiliano & Zagaglia, Paolo, 2013. "Distortionary tax instruments and implementable monetary policy," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 219-243.
    13. Lin, Hsin-Yi & Chu, Hao-Pang, 2013. "Are fiscal deficits inflationary?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 214-233.
    14. Pierre ALDAMA & Jérôme Creel, 2017. "Fiscal policy in the US : Ricardian after all ?," Documents de Travail de l'OFCE 2017-23, Observatoire Francais des Conjonctures Economiques (OFCE).
    15. Christian Schoder, 2014. "The fundamentals of sovereign debt sustainability: evidence from 15 OECD countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(2), pages 247-271, May.
    16. Javier Andres & Oscar Arce & Jesus Fernandez-Villaverde & Samuel Hurtado, 2022. "Deciphering the Macroeconomic Effects of Internal Devaluations in a Monetary Union," International Journal of Central Banking, International Journal of Central Banking, vol. 18(5), pages 1-47, December.
    17. Julia, Knolle, 2014. "An Empirical Comparison of Interest and Growth Rates," MPRA Paper 59520, University Library of Munich, Germany.
    18. Woodford, Michael, 2010. "Optimal Monetary Stabilization Policy," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 14, pages 723-828, Elsevier.
    19. Jérôme Creel & Sandrine Levasseur, 2004. "How would a fixed-exchange-rate regime fit the transition economies?. The cases of the Czech Republic, Hungary and Poland," Revue de l'OFCE, Presses de Sciences-Po, vol. 91(5), pages 83-120.
    20. Todd B. Walker, 2018. "Inflation Targeting in Emerging Economies," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 36(85), pages 7-20, April.

    More about this item

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18797. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.