Recurrent explosive behaviour of debt-to-GDP ratio

Victor Bystrov and Michał Mackewicz

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Public debt; Sustainability; Unit root tests; Explosiveness (search for similar items in EconPapers)
JEL-codes: C12 C22 E62 H63 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-mac and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:75203

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