A time-varying fiscal reaction function for Brazil

Eduardo Lima Campos and Rubens Cysne

No 795, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: This paper evaluates the sustainability of public debt in Brazil using monthly data from the period between January 2003 and June 2016, based on estimation of fiscal reaction functions with time-varying coefficients. Three methods are considered: Kalman filter, penalized spline smoothing, and time-varying cointegration. Although the Kalman filter shows the best statistical results, all methods indicate that the fiscal reaction declined over almost the entire period considered, and lead to the conclusion that the Brazilian public debt, observing the parameters then in force, reaches an unsustainable trajectory in the last years of the study.

Date: 2017-12-01
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Working Paper: A time-varying fiscal reaction function for Brazil (2018)
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