Fiscal Readjustments in the United States: A Nonlinear Time-Series Analysis

21 Pages Posted: 26 Jan 2009

See all articles by Andrea Cipollini

Andrea Cipollini

University of Palermo - d/SEAS; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN)

Bassam Fattouh

University of London - School of Oriental and African Studies (SOAS); University of London - Centre for Financial and Management Studies (CeFIMS)

Kostas Mouratidis

Swansea University

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.

JEL Classification: C32, C53, E62

Suggested Citation

Cipollini, Andrea and Fattouh, Bassam and Mouratidis, Kostas, Fiscal Readjustments in the United States: A Nonlinear Time-Series Analysis. Economic Inquiry, Vol. 47, Issue 1, pp. 34-54, January 2009. Available at SSRN: https://ssrn.com/abstract=1331689 or http://dx.doi.org/10.1111/j.1465-7295.2008.00139.x

Andrea Cipollini (Contact Author)

University of Palermo - d/SEAS ( email )

Viale delle Scienze, edificio 13
Palermo, 90124
Italy

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN) ( email )

via Berengario 51
Modena, modena I-41100
Italy

Bassam Fattouh

University of London - School of Oriental and African Studies (SOAS) ( email )

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
United Kingdom
+020 7898 4053 (Phone)
+020 7898 4089 (Fax)

University of London - Centre for Financial and Management Studies (CeFIMS)

Exhibition Road
London, WC1E 7HU
United Kingdom

Kostas Mouratidis

Swansea University ( email )

Singleton Park
Swansea, SA2 8PP
United Kingdom

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