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Public Debt Dynamics and Debt Feedback

Reda Cherif and Fuad Hasanov

MPRA Paper from University Library of Munich, Germany

Abstract: We study the dynamics of U.S. public debt in a parsimonious VAR. We find that including debt feedback ensures the stationarity of debt while standard VARs excluding debt may imply an explosive debt path. We also find that the response of debt to inflation or interest shocks is not robust and depends on the policy regime. The recent past suggests that a positive shock to inflation increases debt while the same to interest rate decreases it. Positive shocks to growth and primary surplus unambiguously reduce debt.

Keywords: debt; fiscal policy; growth; VAR; generalized impulse responses (search for similar items in EconPapers)
JEL-codes: E62 C32 H60 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-mon
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