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

by Fuad Hasanov,

Subject categories
ISBNs
  • 1475565542
  • 9781475510553
  • 9781475565546
  • 9781475541274
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.
  • International Monetary Fund; September 2012
  • ISBN 9781475541274
  • Read online, or download in secure PDF or secure EPUB format
  • Title: Public Debt Dynamics: The Effects of Austerity, Inflation, and Growth Shocks
  • Author: Fuad Hasanov; Reda Cherif
  • Imprint: INTERNATIONAL MONETARY FUND
Subject categories
ISBNs
  • 1475565542
  • 9781475510553
  • 9781475565546
  • 9781475541274
Subject categories
ISBNs
  • 1475565542
  • 9781475510553
  • 9781475565546
  • 9781475541274