Nonlinearities, co-trending and budget balance sustainability
Holmes, M.J. (2010). Nonlinearities, co-trending and budget balance sustainability. Economic Analysis & Policy, 40(3), 369-376.
Permanent Research Commons link: http://hdl.handle.net/10289/5152
The study provides new evidence on the sustainability debate concerning the US budget balance. Existing studies are often only able to reject non-cointegration between government expenditure and revenue once structural breaks or regime changes are allowed for. Using a testing procedure advocated by Bierens, this study provides a different perspective on this issue. Government expenditure and revenue are both found to be stationary around a nonlinear deterministic trend, and they are co-trended insofar as they share a common nonlinear deterministic trend.
Economic Society of Australia
- Management Papers