We study the dynamics of U.S. public debt in a parsimonious VAR. We find that including debt feedback ensures the stationarity of debt while standard VARs excluding debt may imply an explosive debt path. We also find that the response of debt to inflation or interest shocks is not robust and...

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...

In the current context where the limited role for monetary policy instruments apparently endows fiscal policy with higher effectiveness, European fiscal policy authorities are rather constrained by the fact of most countries being struggling against recessions together with the need to put...

This volume includes five self-contained chapters in the fields of public debt and fiscal transfer schemes. After an introduction to the topic, chapter 2 shows that the institutional setting of fiscal policy making needs to be considered when assessing the sustainability of fiscal policy. Using...

In this paper, we describe key problems of the current EU's fiscal framework and offer constructive alternatives to reforming it. A comprehensive reassessment of the rules is necessary, as the development of the rules has reached an impasse for both political and technical reasons. In our view,...

In order to enhance fiscal sustainability and regain 'investment grade' credit rating, in 2011 Colombia implemented a fiscal rule (FR) on the Central Government's structural balance. Investment grade was rapidly attained, and FR targets were complied with, until 2019. Using the Synthetic Control...

In this paper, we describe key problems of the current EU's fiscal framework and offer constructive options for its reform. A comprehensive reassessment of the rules is necessary, as the development of the rules has reached an impasse for both political and technical reasons. In our view, Europe...

The fiscal policy response to the consequences of the financial and economic crisis consisted either in adopting expansionary policies to stimulate the aggregate demand, or in promoting fiscal consolidation programs designed to restore the sustainability of the public finances. This paper...

The paper explores the macroeconomic consequences of fiscal consolidations whose timing and composition - either tax- or spending-based - are uncertain. We find that the composition of the fiscal consolidation, its duration, the monetary policy stance, the level of government debt, and...

This paper studies the impact of the state-dependent risk of a government default on the correlation of the scal balance and current account. We use a small open economy model where nonlinear risk premia arise endogenously when the government operates close to its scal limit, i.e. the maximum...