Economics at your fingertips  

Public Debt Dynamics; The Effects of Austerity, Inflation, and Growth Shocks

Fuad Hasanov and Reda Cherif

No 12/230, IMF Working Papers from International Monetary Fund

Abstract: We study how macroeconomic shocks affect U.S. public debt dynamics using a VAR with debt feedback. Following a fiscal austerity shock, the debt ratio initially declines and then returns to its pre-shock path. Yet, the effect is not statistically significant. In a weak economic environment, the likelihood of a self-defeating austerity shock is much higher than in normal times. An inflation shock only slightly reduces the debt ratio for a few quarters. A positive growth shock unambiguously lowers debt. In our specification, the debt ratio is stationary, whereas a VAR excluding debt may imply an explosive debt path.

Keywords: Fiscal consolidation; Economic models; External shocks; Economic growth; Fiscal policy; Inflation; Public debt; VAR, impulse responses, debt ratio, debt dynamics, primary deficit, National Budget, Deficit, and Debt: General, Multiple or Simultaneous Equation Models: Time-Series Models, (search for similar items in EconPapers)
Pages: 28
Date: 2012-09-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
Journal Article: Public debt dynamics: the effects of austerity, inflation, and growth shocks (2018) Downloads
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:

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Jim Beardow ().

Page updated 2020-07-02
Handle: RePEc:imf:imfwpa:12/230