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Public Debt Dynamics and Debt Feedback

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  • Reda, Cherif
  • Fuad, Hasanov

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.

Suggested Citation

  • Reda, Cherif & Fuad, Hasanov, 2010. "Public Debt Dynamics and Debt Feedback," MPRA Paper 27918, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27918
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    References listed on IDEAS

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    Cited by:

    1. Mr. Luc Eyraud & Miss Anke Weber, 2013. "The Challenge of Debt Reduction during Fiscal Consolidation," IMF Working Papers 2013/067, International Monetary Fund.
    2. Varun Chotia, 2019. "The Impact Of Fiscal Consolidation And Economic Growth On Debt: Evidence From India," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 64(222), pages 63-80, July – Se.
    3. Benjamin Egron, 2018. "Réduction du ratio de dette publique : quels instruments pour quels effets ?," Working Papers hal-04141802, HAL.
    4. Benjamin Egron, 2018. "Réduction du ratio de dette publique : quels instruments pour quels effets ?," EconomiX Working Papers 2018-1, University of Paris Nanterre, EconomiX.

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    More about this item

    Keywords

    debt; fiscal policy; growth; VAR; generalized impulse responses;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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