Fiscal Stability of High-Debt Nations under Volatile Economic Conditions

Robert Hall ()

German Economic Review, 2014, vol. 15, issue 1, 4-22

Abstract: type="main" xml:id="geer12025-abs-0001">

Using a recursive empirical model of the real interest rate, GDP growth and the primary government deficit in the United States, 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 US government debt implies a belief that the high-deficit policy is transitory.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1111/geer.2014.15.issue-1 (text/html)
Access to full text is restricted to subscribers.

Related works:
Journal Article: Fiscal Stability of High-Debt Nations under Volatile Economic Conditions (2014)
Working Paper: Fiscal Stability of High-Debt Nations under Volatile Economic Conditions (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:germec:v:15:y:2014:i:1:p:4-22

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1465-6485

Access Statistics for this article

German Economic Review is currently edited by Bernhard Felderer, Joseph F. Francois, Ivo Welch, Urs Schweizer and David E. Wildasin

More articles in German Economic Review from Verein für Socialpolitik Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().