The Behavior of U. S. Public Debt and Deficits
TL;DR: This article showed that the U.S. primary surplus is an increasing function of the debt-GDP ratio and that U. S. fiscal policy is satisfying an intertemporal budget constraint.
Abstract: How do governments react to the accumulation of debt? Do they take corrective measures, or do they let the debt grow? Whereas standard time series tests cannot reject a unit root in the U. S. debt-GDP ratio, this paper provides evidence of corrective action: the U. S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time spending and for cyclical fluctuations. The positive response of the primary surplus to changes in debt also shows that U. S. fiscal policy is satisfying an intertemporal budget constraint.
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TL;DR: In this paper, the authors characterize the dynamic effects of shocks in government spending and taxes on U.S. activity in the postwar period by using a mixed structural VAR/event study approach.
Abstract: This paper characterizes the dynamic effects of shocks in government spending and taxes on U. S. activity in the postwar period. It does so by using a mixed structural VAR/event study approach. Identiecation is achieved by using institutional information about the tax and transfer systems to identify the automatic response of taxes and spending to activity, and, by implication, to infer escal shocks. The results consistently show positive government spending shocks as having a positive effect on output, and positive tax shocks as having a negative effect. One result has a distinctly nonstandard eavor: both increases in taxes and increases in government spending have a strong negative effect on investment spending. The predominant, Keynesian, view of the effects of escal policy that was embedded in the large-scale macroeconometric models of the seventies and eighties has come under attack. Theoretically, in the neoclassical approach that has developed in the last twenty years, government spending can have drastically different effects than in Keynesian models, particularly on private consumption. Empirically, the response of the economy to several episodes of escal retrenchment in the last efteen years has been at odds with conventional Keynesian wisdom: on several occasions, private consumption and GDP increased signiecantly while government spending was severely cut. Finally, the evidence from large-scale econometric models has been largely dismissed on the grounds that, because of their Keynesian structure, these models assume rather than document a positive effect of escal expansions on output.
1,916 citations
TL;DR: In this paper, the authors extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers and show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending.
Abstract: Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be easily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending. (JEL: E32, E62)
1,542 citations
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TL;DR: In this paper, the authors characterize the dynamic effects of shocks in government spending and taxes on economic activity in the United States in the post-war period using a mixed structural VAR/event study approach.
Abstract: This paper characterizes the dynamic effects of shocks in government spending and taxes on economic activity in the United States in the post-war period. It does so by using a mixed structural VAR/event study approach. Identification is achieved by using institutional information about the tax and transfer systems and the timing of tax collections to identify the automatic response of taxes and spending to activity, and, by implication, to infer fiscal shocks. The results consistently show positive government spending shocks as having a positive effect on output, and positive tax shocks as having a negative effect. The multipliers for both spending and tax shocks are typically small. Turning to the effects of taxes and spending on the components of GDP, one of the results has a distinctly non-standard flavor: Both increases in taxes and increases in government spending have a strong negative effect on investment spending.
1,077 citations
TL;DR: In this paper, four approaches based on autoregressive moving average (ARMA) method are employed for short-term forecasting of wind speed and direction are employed to forecast wind turbine operation and efficient energy harvesting.
672 citations
TL;DR: In this article, the effects of changes in uncertainty about future fiscal policy on aggregate economic activity were studied, and it was shown that fiscal volatility shocks have an adverse effect on economic activity that is comparable to the effect of a 25-basis-point innovation in the federal funds rate.
Abstract: We study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity. Fiscal deficits and public debt have risen sharply in the wake of the financial crisis. While these developments make fiscal consolidation inevitable, there is considerable uncertainty about the policy mix and timing of such budgetary adjustment. To evaluate the consequences of this increased uncertainty, we first estimate tax and spending processes for the U.S. that allow for time-varying volatility. We then feed these processes into an otherwise standard New Keynesian business cycle model calibrated to the U.S. economy. We find that fiscal volatility shocks have an adverse effect on economic activity that is comparable to the effects of a 25-basis-point innovation in the federal funds rate.
653 citations
Cites background from "The Behavior of U. S. Public Debt a..."
...This structure follows Bohn (1998), who models the primary fiscal surplus as an increasing function of the debt-output ratio, correcting for war time spending and cyclical fluctuations....
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...In contrast, most of the literature focuses on more aggregated fiscal reaction functions, such as those centered on the (primary) deficit that nets out the various spending and revenue components rather than on specific fiscal instruments as in, for example, Bohn (1998)....
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References
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TL;DR: In this article, a parameter covariance matrix estimator which is consistent even when the disturbances of a linear regression model are heteroskedastic is presented, which does not depend on a formal model of the structure of the heteroSkewedness.
Abstract: This paper presents a parameter covariance matrix estimator which is consistent even when the disturbances of a linear regression model are heteroskedastic. This estimator does not depend on a formal model of the structure of the heteroskedasticity. By comparing the elements of the new estimator to those of the usual covariance estimator, one obtains a direct test for heteroskedasticity, since in the absence of heteroskedasticity, the two estimators will be approximately equal, but will generally diverge otherwise. The test has an appealing least squares interpretation.
25,689 citations
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.
Abstract: This paper describes a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction. It also establishes consistency of the estimated covariance matrix under fairly general conditions.
18,117 citations
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TL;DR: A ordered sequence of events or observations having a time component is called as a time series, and some good examples are daily opening and closing stock prices, daily humidity, temperature, pressure, annual gross domestic product of a country and so on.
Abstract: Preface1Difference Equations12Lag Operators253Stationary ARMA Processes434Forecasting725Maximum Likelihood Estimation1176Spectral Analysis1527Asymptotic Distribution Theory1808Linear Regression Models2009Linear Systems of Simultaneous Equations23310Covariance-Stationary Vector Processes25711Vector Autoregressions29112Bayesian Analysis35113The Kalman Filter37214Generalized Method of Moments40915Models of Nonstationary Time Series43516Processes with Deterministic Time Trends45417Univariate Processes with Unit Roots47518Unit Roots in Multivariate Time Series54419Cointegration57120Full-Information Maximum Likelihood Analysis of Cointegrated Systems63021Time Series Models of Heteroskedasticity65722Modeling Time Series with Changes in Regime677A Mathematical Review704B Statistical Tables751C Answers to Selected Exercises769D Greek Letters and Mathematical Symbols Used in the Text786Author Index789Subject Index792
10,011 citations
"The Behavior of U. S. Public Debt a..." refers methods in this paper
...Note that the OLS estimates in Table I are unbiased without requiring assumptions about ergodicity, provided that the error et is independent of the explanatory variables [Hamilton 1994, p. 208]....
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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.
Abstract: This paper describes a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction. It also establishes consistency of the estimated covariance matrix under fairly general conditions.
5,822 citations