Assessing Fiscal Sustainability Subject to Policy Changes: a Markov Switching Cointegration Approach

Vasco J. Gabriel and Pataaree Sangduan
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Pataaree Sangduan: Bureau of the Budget, Thailand

No 309, Department of Economics Discussion Papers from Department of Economics, University of Surrey

Abstract: We propose a Markov switching cointegration approach to assess long run fi?scal sustainability. This method allows us to simultaneously: 1) test for cointegration in the presence of signifi?cant ?fiscal policy changes; 2) assess the type of fi?scal regime (whether strongly/weakly sustainable or unsustainable) that a country experienced at a given period and 3) analyse the timing of the transition between the estimated regime types. Given its flexibility, our approach enables us to uncover a richer and more complex dynamics in the analysis of fi?scal sustainability, which standard linear cointegration methods fail to capture.

JEL-codes: C22 E62 H60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-sea
Date: 2009-04
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Persistent link: http://EconPapers.repec.org/RePEc:sur:surrec:0309

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