Journal ArticleDOI
Sustainability of the Deficit Process With Structural Shifts
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The authors discusses the condition for deficit sustainability and searches for shifts in the structure of U.S. deficit policy, finding that there is a shift in deficit policy in the early 80s so that cointegration between revenue and expenditure inclusive of interest payments holds only up to 1980.Abstract:
This article discusses the condition for deficit sustainability and searches for shifts in the structure of U.S. deficit policy. I show that, contrary to the current literature, cointegration between revenues and expenditures inclusive of debt payment is not a necessary but a sufficient condition for a strict interpretation of deficit sustainability. The necessary condition requires that debt grow slower than the borrowing rate. For tests on structural shifts, I use a test for structural change that searches for shifts in the rank of the cointegrating matrix. I find that there is a shift in deficit policy in the early 80s so that cointegration between revenue and expenditure inclusive of interest payments holds only up to 1980. I show, however, that the deficit process is still sustainable despite the failure of cointegration in the 80s. The finding of shifts in the deficit process is more uncertain when I normalize by gross national product or population, but the deficit is shown to be sustainable regard...read more
Citations
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Journal ArticleDOI
Financial Development and Economic Growth: The Role of Stock Markets
TL;DR: This article examined the relationship between stock market development and economic growth, controlling for the effects of the banking system and stock market volatility, and found that although both banks and stock markets may be able to promote economic development, the erects of the former are more powerful.
Journal ArticleDOI
Some tests for parameter constancy in cointegrated VAR-models
Henrik Hansen,Søren Johansen +1 more
TL;DR: In this article, two different ways of re-estimating the VAR-model are proposed; one in which all parameters are estimated recursively based upon the likelihood function for the first observations, and another in which the cointegrating relations are estimated from a likelihood function, where the short-run parameters have been concentrated out.
Journal ArticleDOI
Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint
TL;DR: In this paper, error-correction-type policy reaction functions are suggested as more promising for understanding deficit problems, which are consistent with the inter-temporal budget constraint, i.e., the constraint proves to be satisfied if either the debt series or the revenue and with-interest spending series are integrated of arbitrarily high order.
Posted Content
Public Finances and Long-Term Growth in Europe - Evidence from a Panel Data Analysis
TL;DR: In this article, the authors investigate whether there have been persistent shifts or trends in economic growth and fiscal variables over the last 40 years and find that government consumption and transfers negatively affect growth rates of GDP per capita over the business cycle, while public investment has a positive impact.
Journal ArticleDOI
Fiscal Sustainability: the Unpleasant European Case *
TL;DR: In this article, co-integration tests between public expenditures and public revenues, allowing for structural breaks, are performed for the EU countries for the 1970-2003 period to assess the sustainability of budget deficits.
References
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ReportDOI
A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix
Whitney K. Newey,Kenneth D. West +1 more
TL;DR: In this article, a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction is described.
Journal ArticleDOI
Maximum likelihood estimation and inference on cointegration — with applications to the demand for money
Søren Johansen,Katarina Juselius +1 more
TL;DR: In this paper, the estimation and testing of long-run relations in economic modeling are addressed, starting with a vector autoregressive (VAR) model, the hypothesis of cointegration is formulated as a hypothesis of reduced rank of the long run impact matrix.
Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models / Søren Johansen
TL;DR: In this paper, the authors present the likelihood methods for the analysis of cointegration in VAR models with Gaussian errors, seasonal dummies, and constant terms, and show that the asymptotic distribution of the maximum likelihood estimator is mixed Gausssian.
Journal ArticleDOI
Estimation and hypothesis testing of cointegration vectors in gaussian vector autoregressive models
TL;DR: In this article, the authors derived the likelihood analysis of vector autoregressive models allowing for cointegration and showed that the asymptotic distribution of the maximum likelihood estimator of the cointegrating relations can be found by reduced rank regression and derives the likelihood ratio test of structural hypotheses about these relations.
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