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Author/Editor:
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Cherif, Reda ; Hasanov, Fuad
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Publication Date:
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September 01, 2012
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Electronic Access:
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Free Full text
(PDF file size is 1,040KB).
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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Summary:
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.
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Order a print copy
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Series:
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Working Paper No. 12/230
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Subject(s):
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Economic growth | Economic models | External shocks | Fiscal consolidation | Inflation | Public debt
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Author's Keyword(s):
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Public debt | fiscal policy | VAR | impulse responses |
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English
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Publication Date:
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September 01, 2012
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Format:
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Paper
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Stock No:
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WPIEA2012230
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Pages:
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28
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Price:
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US$18.00 )
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Please address any questions about this title to
publications@imf.org
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