Fiscal Readjustments in the United States: a Nonliner Time-Series Analysis

Cipollini, Andrea; Fattouh, Bassam; Mouratidis, Kostas

Abstract

We analyze the fiscal adjustment process in the United States using a multivariate threshold vector error regression model. The shift from single-equation to multivariate setting adds value both in terms of our economic understanding of the fiscal adjustment process and the forecasting performance of nonlinear models. We find evidence that fiscal authorities intervene to reduce real per capita deficit only when it reaches a certain threshold and that fiscal adjustment takes place primarily by cutting government expenditure. The results of out-of-sample density forecast and probability forecasts suggest that a shift from a univariate autoregressive model to a multivariate model improves forecast performance.

Citation

Cipollini, A., Fattouh, B., & Mouratidis, K. (2009). Fiscal Readjustments in the United States: a Nonliner Time-Series Analysis. Economic Inquiry, 47(1), 34-54. https://doi.org/10.1111/j.1465-7295.2008.00139.x

• Journal Article Type: Article
• Publication Date: Jan 1, 2009
• Deposit Date: Feb 18, 2009
• Journal: Economic Inquiry
• Print ISSN: 0095-2583
• Electronic ISSN: 1465-7295
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 47
• Issue: 1
• Pages: 34-54
• DOI: https://doi.org/10.1111/j.1465-7295.2008.00139.x
• Additional Information: Copyright Statement : © 2008 Western Economic Association International