Surplus-Debt Regressions

Eric Leeper and Bing Li

No 22662, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Single-equation estimates of fiscal reaction functions, which relate primary surpluses to past debt-GDP ratios and control variables, are subject to potentially serious simultaneity bias that can produce misleading inferences about fiscal behavior. Biases arise from failure to model the general equilibrium relationships between government debt and surpluses, relationships that bring in the forward-looking nature of nominal debt valuation and the role of monetary policy in that valuation.

JEL-codes: C13 E62 E63 H62 H63 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-mac
Note: EFG
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Published as Leeper, Eric M. & Li, Bing, 2017. "Surplus–debt regressions," Economics Letters, Elsevier, vol. 151(C), pages 10-15.

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Journal Article: Surplus–debt regressions (2017)
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