government debt government spending and private sector behavior comment in a recent issue of this review 1983 roger kormendi relied upon the work of martin bailey 1962 1971 and robert barro 1974 to develop an alternative approach to modeling private sector consumptionsaving behavior based on rational evaluation of the consequences of government fiscal policy p 995 briefly this approach involves determining to what extent government spending substitutes for private consumption and to what extent government debt is net wealth and thereby also affects private consumption this consolidated approach to examining private sector consumption is not only novel but appears at a time when there is widespread interest as well as controversy over the effects of government fiscal policy it therefore seems only appropriate to examine further the results obtained by kormendi not to criticize them but rather to explore their robustness this comment specifically explores the sensitivity of kormendi s results to alternative time periods of estimation to the differentiation between federal debt and state and local government debt and to the measurement of government debt particularly par vs market value

are future taxes discounted in this paper i examine empirically the question of whether or not the public recognizes the future taxes implied by current deficitfinanced expenditures as discussed by barro 1 it seems that such recognition does not occur but that by a new hypothesis presented here the aggregate economy behaves much as if it did this alternative hypothesis relies on the widely accepted efficient markets and permanent income hypotheses and it requires considerably less sophistication and information on the part of the average economic agent than does barro s hypothesis

the market value of outstanding government debt 1919 1975 abstract several new series on the market value of outstanding government debt are reported and their methods of construction described the new series on federal debt are compared with other existing estimates and are shown to be markedly superior to them

growth and environmental quality testing the double convergence hypothesis abstract this paper discusses the double convergence hypothesis dch that the uncritical analysis of the so called environmental kuznets curve ekc implicitly implies according to the ekc empirical evidence would support the hypothesis that economic growth through a deterministic sequence of phases would produce cross country convergence in per capita output and as a by product convergence in the demand for environmental quality however factual analysis seems to reject the general hypothesis of convergence in per capita output limiting the validity of such an assessment to the case of homogeneous groups of countries this is why to test the dch the paper focuses on the original group of oecd countries for which the economic convergence turned out to be true this allows us to verify whether green and convergence follows as a consequence of economic convergence the paper also tests for a more equitable distribution of protection policies among countries unlike other studies which do not make the dch explicit and have focused on pollutant emissions this research explicitly tests for the double convergence using as a proxy for the demand for environmental quality the territory set aside for protected areas the results confirm that for the selected homogenous group of countries growth has accompanied the demand for environmental quality this happens both in terms of conditional and stochastic convergence

an empirical test of the effects of government deficits on money demand there is a great deal of interest in how govenment deficits affect macroeconomic variables accordingly there is a large body of theoretical and empirical work on the topic this paper examines the relationship between deficits and interest rates among the difficulties in exploring this relationship is that when conducting monetary policy the federal reserve often targets interest rates such a policy can cloud any relationship between deficits and interest rates a way to avoid this problem among others is to estimate money demand functions that contain a measure of the market value of government debt no evidence is found to support a positive relationship between government debt and money demand this finding implies budget deficits do not affect interest rates through money demand

the market value of u s government debt monthly 1942 1980 abstract the market value of outstanding united states treasury debt is calculated on a monthly basis using price and par value data from the treasury bulletin separate series for treasury bills bonds certificates of indebtedness notes and total treasury debt are presented along with estimates of privately held treasury debt and gross federal debt the calculated market value series is compared to par value and an existing annual market value series

convergence in per capita carbon dioxide emissions among g7 countries a tar panel unit root approach the subject of this paper is the examination the convergence of per capita carbon dioxide emissions of the g7 countries during the 1960 2005 period in a nonlinear panel analysis framework in this approach first the linearity of the series was tested and when the linearity was rejected the threshold autoregressive tar panel unit root test which splits the data into two regimes was employed to examine the stationarity properties of the series because the null of linearity was rejected in the first step we tested the stationarity of the series using the tar panel unit root test in the tar panel unit root test we found that the united kingdom was the transition country whose per capita carbon dioxide co2 emissions determined the switch from one regime to the other the results showed that convergence existed in the first regime and divergence in the second when we tested whether absolute or conditional convergence existed we found that the per capita co2 emissions were conditionally converging in the first regime

the behavior of treasury securities monthly 1942 1984 abstract the monthly market value statistics on outstanding united states treasury debt are reported for the 1981 1984 period in addition a monthly series on privately held gross federal debt is reported for the extended 1942 1984 period together with monthly security price indices for various federal debt aggregates examination of the stochastic structure of t bill prices indicates that the riskiness of t bills has increased dramatically in recent years

on the low frequency relationship between public deficits and inflation summary we estimate the low frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time varying vector autoregression model for us data from 1900 to 2011 we find the strongest relationship neither in times of crisis nor in times of high public deficits but from the mid 1960s up to 1980 employing a structural decomposition of the low frequency relationship and further narrative evidence we interpret our results such that the low frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after world war ii copyright 2015 john wiley sons ltd

stochastic divergence or convergence of per capita carbon dioxide emissions re examining the evidence this paper revisits the time series literature on the convergence of per capita carbon dioxide co2 emissions and examines the robustness of previous results using a sample of oecd countries for the period 1950 2002 we employ a battery of stationarity and unit root tests including those that allow for cross sectional dependencies within the panel we also correct for inaccuracies in previous studies that could result in a trend stationary series being labelled as converging even if it were actually diverging from the international average the body of evidence provided by our analysis suggests that per capita co2 emissions have not converged among oecd countries during the period under consideration this finding is of importance to both climate change policy makers and to those who construct climate change models

deviations and mean reversion to purchasing power parity in the asian currency crisis of 1997 this study analyses the process of mean reversion towards purchasing power parity ppp for a sample of asian countries around the 1997 crisis it is found that appreciation relative to ppp is evident prior to the 1997 crash period correction occurs from 1997 onwards a period marked by extreme movements in exchange rates with both appreciation and depreciation relative to the ppp rate over relatively short periods the key result of this paper is that although reversion towards ppp is apparent for mean though not statistically significant it is clear that there is a substantial statistically significant change in variance from 1997 onwards this result has implications both for economic modelling of crash periods and for appropriate choice of statistical tests

the capital gains and losses on u s government debt 1942 1987 the capital gains and losses on u s treasury securities are calculated and reported on a quarterly basis over the 1942 87 period these data are then used to calculate an adjusted measure of the federal budget deficit for the years 1975 87 whereas the rising trend in interest rates over the 1975 81 period substantially reduced the federal deficit this study shows that the reversal of that trend over the 1981 86 period contributed even more greatly to an increase in the deficit also calculated and reported are holding period rates of return on overall marketable treasury debt providing a contrast to existing interest rate series copyright 1989 by mit press

persistence mean reversion and non linearities in emissions evidence from the brics and g7 countries the ministerio de economia y competitividad eco2014 55236 juncal cunado gratefully acknowledges financial support from the ministerio de economia y competitividad eco2014 55496

the differing effects of pre and post 1981 federal budget deficits on tax adjusted real interest rates this paper employs an estimating equation relating tax adjusted real interest rates to deficits and other economic variables to examine the differing effects of pre and post 1981 federal budget deficits on ex ante and ex post real tax adjusted short term interest rates over the period 1961 1 1992 2 the results for the 1961 1 1992 2 period taking into account a shift in the linkage between the ratio of alternative measures of the deficit to potential gdp occurring in 1981 1 indicate that the ratio of both the nipa deficit and the cyclically adjusted deficit to potential gdp have a significant effect on ex ante and ex post real tax adjusted interest rates for the post 1981 period but no significant effect before 1981

stoking the fires co2 emissions and economic growth abstract we examine the relationship between economic development and carbon dioxide emissions a greenhouse gas central to global warming predictions estimates derived from global panel data suggest a diminishing marginal propensity to emit mpe carbon dioxide as gdp per capita rises despite this global carbon dioxide emissions growth will continue at 1 8 percent per annum for the foreseeable future a result that is not sensitive to average output growth instead emissions growth continues because output and population will grow most rapidly in lower income nations with high mpes this latter feature emphasizes the distributional consequences of policies to reduce emissions

government debt and the demand for money an extreme bound analysis m keivan deravi charles e hegji and h dean moberly the article provides evidence that there is a relationship between government debt and interest rates via the demand for money this relationship is examined through the wealth effect of government debt on money demand and the robustness of the results is tested by the use of extreme bound analysis in addition to standard econometric techniques we find that ols regression shows government debt affecting the demand for money positively implying that federal government debt is net wealth in addition the extreme bound analysis shows that the estimates of the government debt coefficient are robust under alternative specifications of the goldfeld model i introduction this paper studies the relationship between government debt and interest rates the approach used in this paper differs from previous studies in two ways first this relationship is examined through the wealth effect of government debt on the demand for money second the robustness of the results is tested by use of extreme bound analysis as an alternative to standard econometric techniques theoretically there is no clear cut consensus as to whether or not government debt should be net wealth the argument used most often is that government debt will be net wealth if future tax liabilities to service the debt are for the aggregate economy only partially discounted two explanations for this partial discounting are offered first in dealing with finite lived individuals thompson 1967 assumes that the average remaining lifetime of current taxpayers is shorter than for future interest payments on the federal debt in this situation the net present value of a stream of equal interest payments and taxes will be positive as a counter argument barro 1974 has shown that current generations can act effectively as if they are infinite lived when they are linked to future generations through a series of pairwise transfers of wealth here the realization by current generations that tax liabilities will be left to future generations extends the lifetime of the relevant stream of tax liabilities for debt service government debt is then wealth neutral mundell 1971 provides a second reason for partial discounting by assuming that capital markets are imperfect and that the relevant discount rate for tax liabilities is higher than the rate for interest payments these discount rates are respectively thought of as applying to high risk of loan default and low risk of loan default individuals this difference in discount rates creates a positive wealth effect since under mundell s assumptions government debt held by taxpayers involves a loan from low discount rate to high discount rate individuals as barro 1974 has again countered this wealth effect will exist only to the extent that the government is more efficient at providing such a loan than the private sector finally barro 1974 kormendi 1983 and later aschauer 1985 advance an argument as to why government debt might be negative net wealth suppose there is considerable uncertainty about the intertemporal and cross sectional burden of the future tax liability necessary to service the debt in this case the certainty equivalent value of these future taxes might exceed the certainty equivalent value of the future income stream of the debt so that government debt would be negative net wealth the majority of the empirical studies of the net wealth induced linkage between government debt and interest rates have attempted to measure this relationship using consumption functions if privately owned government debt is net wealth the wealth effect of this debt working through a keynesian consumption function will be positive so that increased government borrowing will result in increased current consumption and interest rates several studies have assessed the relationship between government borrowing and consumption or interest rates via this mechanism

rational expectations and the effects of government debt abstract this paper incorporates the effects of government debt into a standard rational expectations macroeconomic model due to limited current information even when the most extreme propositions about fiscal neutrality are true there are output and interest rate effects of unanticipated changes in government debt therefore the observation of a positive correlation between government deficits and output or interest rates does not imply that government bonds are net wealth

interest rate differentials on short term securities and rational expectations of inflation abstract this paper tests a theorem to the effect that the difference in nominal interest rates between two securities of the same maturity but different risk is an increasing linear function of the expected rate of inflation when inflation is modelled in a way which is rational in the sense of muth the evidence is highly consistent with the theorem s inferences estimates are also obtained of the real risk premiums that certain types of securities generate over the three month treasury bill rate which is assumed to be risk free these range from three basis points for three month finance paper to 16 basis points for three month eurodollar deposits

convergence of per capita carbon dioxide emissions in the eu legend or reality abstract designing appropriate environmental and energy policies in order to meet the kyoto protocol s carbon dioxide co 2 reduction targets in the european union eu requires a detailed examination and thorough understanding of co 2 emission trends across the eu member states this paper investigates whether co 2 emissions have converged across 22 european countries over the 1971 to 2006 period the bayesian shrinkage estimation method is employed to do this work and the results reveal the following first the hypothesis of absolute convergence in per capita co 2 emissions is supported and a slight upward convergence is observed second the fact that countries differ considerably in both their speed of convergence and volatility in emissions makes it possible to identify different groups of countries third the results with respect to convergence do not vary much once the share of industry in gdp is accounted for in a conditional convergence analysis however a decreasing share of industry in gdp seems to contribute to a decline in per capita emissions these findings may carry important implications for both national and eu environmental policies

stochastic convergence in per capita co2 emissions an approach from nonlinear stationarity analysis abstract this paper studies stochastic convergence of per capita co 2 emissions in 28 oecd countries for the 1901 2009 period the analysis is carried out at two aggregation levels first for the whole set of countries joint analysis and then separately for developed and developing states group analysis a powerful time series methodology adapted to a nonlinear framework that allows for quadratic trends with possibly smooth transition between regimes is applied this approach provides more robust conclusions in convergence path analysis enabling a robust detection of the presence and if so the number of changes in the level and or slope of the trend of the series b inferences on stationarity of relative per capita co 2 emissions conditionally on the presence of breaks and smooth transitions between regimes and c estimation of change locations in the convergence paths finally as stochastic convergence is attained when both stationarity around a trend and convergence simultaneously hold the linear approach proposed by tomljanovich and vogelsang 2002 is extended in order to allow for more general quadratic models overall joint analysis finds some evidence of stochastic convergence in per capita co 2 emissions some dispersion in terms of convergence is detected by the group analysis particularly among developed countries this is in accordance with per capita gdp not being the sole determinant of convergence in emissions with factors like search for more efficient technologies fossil fuel substitution innovation and possibly industry outsourcing also having a crucial role

is there convergence in per capita renewable energy consumption across u s states evidence from lm and rals lm unit root tests with breaks abstract given the federal and state policy initiatives to curb fossil fuel consumption and expand the use of renewable energy sources in the u s this study investigates the convergence properties of per capita renewable energy consumption across u s states including the district of columbia in addition to cross sectional tests of and convergence our study employs lm and rals lm unit root tests with endogenously determined structural breaks to test for stochastic convergence traditional cross sectional tests indicate that both and convergence of per capita renewable energy consumption exists across u s states moreover our results also provides clear support for stochastic convergence of per capita renewable energy consumption for a majority of u s states including the district of columbia once allowance is made for structural breaks

have air pollutant emissions converged among u s regions evidence from unit root tests previous studies of income distribution have found evidence indicating that incomes across u s regions have converged supporting the prediction of the neoclassical growth model a potential shortcoming in these studies is that only one measure of well being is considered a measure of wealth linked to incomes or production this paper examines whether income convergence was accompanied by air pollutant emission convergence results from unit root tests provide some evidence that indicators of environmental quality have converged across u s regions during the 1929 1994 period

currency crashes in emerging markets an empirical treatment we use a panel of annual data for over 100 developing countries from 1971 through 1992 to characterize currency crashes we define a currency crash as a large change of the nominal exchange rate that is also a substantial increase in the rate of change of nominal depreciation we examine the composition of the debt as well as its level and a variety of other macroeconomic factors external and foreign crashes tend to occur when output growth is low the growth of domestic credit is high and the level of foreign interest rates are high a low ratio of fdi to debt is consistently associated with a high likelihood of a crash

convergence in energy consumption per capita among asean countries abstract we test for convergence in energy consumption per capita among asean countries over the period 1971 to 2011 using the panel kpss stationarity test and panel lagrange multiplier lm unit root test the results for the panel stationarity and unit root tests with structural breaks find support for energy convergence in asean

government debt government spending and private sector behavior a current period tax reduction financed by issuing government debt shifts the timing of tax collection from the current period to the future if the future taxes implied by government debt are not fully perceived and discounted by the private sector there will be a net wealth effect that increases private sector consumption thus reducing capital accumulation and growth if on the other hand the implied future taxes are perceived and discounted by the private sector the current period tax reduction will be used to increase private saving to pay for the future taxes and government debt will be absorbed without any real effects on the economy the effects of government spending financed by current period taxation also depend upon private sector perceptions 2 if the benefits of government spending are ignored private sector consumption will decrease in accordance with the reduction in permanent disposable income to the extent that government spending is on consumption type goods that are perceived as substitutes for privately provided consumption goods there will be a relatively greater reduction in private sector consumption to the extent that government spending is on investment type goods yielding future goods and services that are perceived as substitutes for future privately provided consumption goods there will be a relatively smaller reduction in private sector consumption the standard approach to modeling private sector consumption saving behavior involves a rather asymmetric set of assumptions as to how the private sector perceives the various elements of government fiscal policy 3 current period taxes are assumed to be fully perceived but current period government spending is implicitly assumed to be completely ignored by the private sector in considering permanent personal disposable income the private sector is assumed to be forward looking in its assessment of income and taxation the stock of government debt is nevertheless included as part of the stock of private wealth the implicit assumption associate professor of economics graduate school of business university of chicago 1101 east 58th street chicago il 60637 i thank eugene fama levis kochin michael mussa paul evans and an anonymous referee for helpful comments i am particularly grateful to daniel benjamin for contributing many hours of discussion and laura lahaye who was a research assistant and valuable adviser on earlier drafts the theoretical debate on the burden of the debt has been long standing gerald o driscoll 1977 documents ricardo s nineteenth century position robert barro 1974 reopened the debate by introducing the fundamental issue of intergenerational transfers also discussed in merton miller and charles upton 1974 the empirical side of the debate was initiated by levis kochin s 1974 attempt to test for the effects of deficits on consumption and by martin feldstein s 1974 attempt to test for the effects of social security wealth on consumption other empirical contributions include jess yawitz and laurence meyer 1976 myself 1978 and j earnest tanner 1978 1979 with respect to the effects of government deficits and debt and barro 1978 michael darby 1979 and dean leimer and selig lesnoy 1982 with respect to social security wealth see also interesting recent papers by john seater 1982 who generates detailed tests of the effects of deficits and debt on consumption charles plosser 1982 who explores the effects of government spending and debt shocks on interest rates and feldstein 1982 who attempts tests similar to some in this paper see fn 29 2martin bailey s 1962 1971 development of the effects of government spending on private consumption and aggregate economic activity is the seminal contribution paul david and john scadding 1974 extend bailey s ideas and provide some supporting empirical evidence more recently willem buiter 1977 and myself 1978 developed models based on bailey s earlier work barro 1981 has an interesting paper on related issues see also david aschauer 1982 3the standard approach incorporates fiscal policy through the concept of personal disposable income and by including the stock of government debt as part of personal wealth see for example the empirical specification of albert ando and franco modigliani 1963 which has been the basis of most empirical consumption studies since and feldstein 1974 for one of the more influential papers based on the ando modigliani specification

government debt national income and causality the concept of granger causality is applied to assess the validity of the ricardian equivalence hypothesis the analysis is conducted using a multivariate approach with a us data set consisting of annual observations for the 1919 1981 period the empirical evidence generated by this investigation does not support the strict debt neutrality position

the use of inputs by the federal reserve system an extended model recently it has been argued that bureaucratic incentives play an important role in the formulation of policy and the inflationary bias of the federal reserve system shughart and tollison 1983 hereafter s t 1 in particular s t maintain that the fed can retain profits denominated in amenities but not in dollars as a result of the congressional constraint that excess profits be returned to the treasury this constraint provides bureaucratic incentives for the fed to purchase more amenities than a for profit organization and ex plains s t 1983 291 in part the fed s apparent inflationary bias expansionary monetary policy then enlarges the fed s profit amenities choices and allows it to pursue its goal of bureaucratic enhancement s t assume that the dollar value of these amenities is a monotonic transformation of fed employment using this public choice framework they develop a model in which the monetary base is a function of a number of variables including employment in the federal reserve system sysemp

real exchange rates under the gold standard purchasing power parity is one of the most important equilibrium conditions in international macroeconomics empirically it is also one of the most hotly contested numerous recent studies for example have sought to determine the validity of purchasing power parity using data from the post bretton woods float and have reached different conclusions we assert that most such studies are flawed for two reasons first the post 1973 data contain by definition only a very limited amount of the low frequency information relevant for examination of long run parity second the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low frequency dynamics both deficiencies are rectified in the present paper with dramatic results we construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period and we study deviations from parity using long memory models that allow for subtle forms of mean

is a military really a luxury good an international panel study of ldcs this paper introduces country specific fixed effects into a theoretical and empirical model of military expenditure contrary to the existing literature the model indicates that the share of military expenditure decreases with a country s income

are co2 emission levels converging among industrial countries time paths of carbon dioxide emissions intwenty one industrial countries are examinedfrom 1960 1997 to test for stochastic andconditional convergence both panel unit roottests and cross section regressions areperformed overall we find significantevidence that co2 emissions haveconverged

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

mean reversion in co2 emissions the need for structural change this paper examines stochastic convergence of national and relative per capita co emissions for a wide range of nations it demonstrates that nearly all series are mean reverting once allowance is made for non linearity and the presence of serial correlation the policy implications are far reaching since the implication is that mitigation can be accomplished only through structural changes that alter the deterministic paths of emissions

government borrowing and tax adjusted real and nominal interest rates the purpose of this paper is to test for the effect of federal government budget deficits on one year tax adjusted nominal and real interest rates in an is lm as model the results suggest that the specification of the dependent variable is a crucial issue in the debate over the linkage between deficits and interest rates the evidence shows a positive and significant effect of various measures of the federal government deficit and debt on the real tax adjusted treasury bill rate in both the levels and the first differenced equations but not on the nominal tax adjusted rate the positive and significant deficit debt coefficients are also confirmed when the first differenced equation is estimated by instrumental variables and when the equation is estimated over various time periods thus there is robust evidence of a positive linkage between federal government borrowing and the tax adjusted real but not nominal interest rates

the market value and maturity structure of government of canada debt 1967 83 the market value and maturity structure of outstanding government of canada debt are calculated at monthly frequency for the 1967 to 1983 period the data are disaggregated into general public chartered bank and government holdings the time series behaviour of market value and par value measures are examined to determine whether par value is a reasonable approximation for market value market value data are also used to construct an alternative measure of the deficit flow which is compared with conventional measures of the deficit la valeur au marche et la structure d echeances de la dette du gouvernement du canada 1967 83 la valeur au marche et la structure d echeances de la dette du gouvernement du canada sont calculees par les auteurs pour chaque mois au cours de la periode de 1967 a 1983 on a ventile les resultats en portions detenues par le grand public par les banques a charte et par le gouvernement les auteurs examinent ensuite la chronique des mesures de valeurs au march6 et de valeurs au pair afin de determiner si la valeur au pair est une bonne approximation de la valeur au marche on se sert alors des donnees precisant la valeur au marche pour construire un indicateur de rechange du d6ficit qu on peut alors comparer aux mesures conventionnelles du deficit

convergence in co2 emissions a spatial economic analysis with cross country interactions abstract this research analyzes the evolution of co2 emissions per capita in a sample of 141 countries during the period 1970 2014 the study develops a spatially augmented green solow model by taking into consideration technological externalities and interdependence in the process of production which ultimately implies that co2 emissions in an economy are affected by the economic characteristics in neighboring countries the empirical model predicts convergence in co2 emissions among countries which is examined by means of modern dynamic spatial panel econometric techniques the multimodal distribution of the co2 emissions is consistent with the existence of three spatial clubs the space time dynamics of the three clubs are analyzed by means of the local directional moran scatterplot and spatial panel model with heterogeneous parameters our analysis reveals the hypothesis of spatial convergence clubs is more consistent with the data than the hypothesis of conditional convergence

does monetization of federal debt matter evidence from the financial markets the proposition that in a perfect capital market a firm s total market value is consistent with alternative configurations of its capital structure was established by modigliani and miller 1958 more recently barro 1974 and miller and upton 1974 discussed a similar invariance proposition which holds with respect to the financing of government expenditures as well specifically the proposition states that whether a given level of government purchases is tax financed or bond financed is irrelevant this neutrality argument is based on the presence of intergenerational transfers so that the public equates the current value of the bonds with the present value of future tax liabilities generated by the bonds consequently no net wealth is involved when government bonds are issued and the public or the immortal consumer is indifferent as to whether tax or debt financing is used the purpose of this paper is to test some hypotheses that emerge from a generalization of this independence proposition in public finance in particular the extension of the notion to the irrelevancy of base money in the financing of federal debt is subjected to empirical scrutiny fiscal policy is concerned with the financing of government expenditures by either levying taxes or issuing bonds determining the proportion of government

is the budget deficit too large some further evidence i introduction since the early 1980s the u s federal government has run unprecedented peacetime deficits the size of these deficits became a major issue in recent u s presidential elections for example during the 1992 elections ross perot successfully used his simple charts and tables to convey the notion that the size of the deficit was too large economists look at the deficit issue from a different perspective instead of emphasizing the size of the deficit at any particular point in time they are more concerned with the intertemporal solvency condition the present value of debt in the long run this condition focuses on the long run paths of interest inclusive expenditures and revenues unless these two variables trend together over the long run the government will have an incentive to default on the debt losing the confidence of investors from the standpoint of the intertemporal solvency condition are recent deficits too large do they represent boundless growth of government debt as an empirical proposition boundless growth of the debt corresponds to non stationarity of the deficit or the first difference of the debt recent developments in time series econometrics have provided ways to examine the intertemporal solvency condition for example hamilton and flavin 1986 and trehan and walsh 1991 apply stationarity tests to the u s federal deficit similarly hakkio and rush 1991 test for cointegration between interest inclusive expenditures and revenues while bohn 1991 tests for the cointegration of debt non interest expenditures and revenues hakkio and rush s results suggest that the deficit is too large for intertemporal solvency and thus the government has an incentive to default on its debt they conclude that over the period 1950 through 1989 interest inclusive expenditures and revenues are cointegrated but not one to one this suggests that although the present discounted value of the debt tends to zero the undiscounted value of the debt will be unbounded moreover they find that interest inclusive expenditures are not cointegrated with revenues over the period 1964 to 1989 the government debt appears to drift upward without bound overall hakkio and rush s results suggest that the government will have an incentive to default on the debt at some point in the future 1 we look at the issue from a different point of view we believe that a discrete break in the fiscal process occurred in the early 1980s as a result of several policy changes such as the 1981 economic recovery and tax act during the first reagan administration this reagan era change is modeled as a one time upward shift in the constant component of the deficit as mccallum 1984 shows a constant interest inclusive deficit does not imply boundless growth of government debt and should not provide an incentive to inflate away the debt as did previous research we conduct tests for the cointegration of interest inclusive expenditures and revenues as well as stationarity tests on the deficit 2 however we allow a shift in the intercept term of the cointegration and stationarity tests to capture the break in the fiscal process our results show that when the break is included expenditures and revenues are cointegrated with a coefficient not statistically different from unity i e that the deficit is stationary this contradicts the conclusions of hakkio and rush of course the way we choose the break date may be crucial to our analysis our initial choice of break date is based on prior information this is the approach used by perron 1989 who tests the u s gnp with a break chosen using prior information christiano 1992 criticizes perron 1989 on the a priori choice of the break date he suggests that the break date should be chosen using a formal pre test procedure moreover any statistical inference that follows must take this pre test procedure into account

new evidence on deficits and interest rates it is generally assumed on theoretical grounds that increases in government borrowing cause interest rates to rise 1 but empirical support for this proposition has been weak at best several recent papers have uncovered no strong relationship between deficits and short terrn interest rates however the research reported here indicates that although the relationship between deficits and short terrn interest rates may be tenuous there is strong evidence that larger deficits are associated with higher long terrn interest rates much of the debate about whether there is a strong relationship between federal borrowing and interest rates concerns the crowding out question this controversy centers on the direct and indirect eilffects of government fiscal actions on private spending these effects have been well documented in the theoretical literature e g buiter 1977 carlson and spencer 1975 blinder and solow 1973 many of the crowding out effects studied in this literature depend on the connection between government borrowing and high interest rates friedman 1978 meyer 1975 silber 1970 this is called short run indirect crowding out and may occur when increases in government spending and borrowing cause interest rates to rise which then may cause private spending to be reduced buiter 1977 pp 310 13

alternative modes of deficit financing and endogneous monetary and fiscal policy in the u s a 1923 1982 this paper first investigates the effects of alternative modes of deficit financing on the unemployment rate the inflation rate and the real interest rate within the framework of a small complete macroeconomic model secondly it examines the nature of monetary and fiscal reaction functions the two periods 1923 1960 and 1961 1982 are considered with substantial differences in behaviour and policy being shown to exist between them the most important conclusion is that long run monetary neutrality properties shown to exist over the latter period are not intrinsic to the u s economy but rather are the result of the stabilization policies being conducted over that period

currency crises and the stock market empirical evidence for another type of twin crisis we explore the dependency between currency crises and the stock market in emerging economies our focus is two fold first the risk of a currency crisis rises as the foreign stake in the domestic stock market increases successful economies with high capital flows into their booming stock markets especially are prone to stock market induced currency crises second we apply the dividend growth model to show that stock markets crash in the run up to a currency crisis this new type of twin crisis is empirically tested by employing a logit framework using quarterly data for 33 emerging economies for 1994q1 2007q4

the causal factors of international inequality in hbox co _ 2 emissions per capita a regression based inequality decomposition analysis this paper uses the possibilities provided by the regression based inequality decomposition fields in res labor econ 22 1 38 2003 to explore the contribution of different explanatory factors to international inequality in hbox co 2 emissions per capita in contrast to previous emissions inequality decompositions which were based on identity relationships this methodology does not impose any a priori specific relationship thus it allows an assessment of the contribution to inequality of different relevant variables in short the paper appraises the relative contributions of affluence sectoral composition demographic factors and climate the analysis is applied to selected years of the period 1993 2007 the results show the important though decreasing share of the contribution of demographic factors as well as a significant contribution of affluence and sectoral composition

drivers of industrial and non industrial greenhouse gas emissions abstract though there has been extensive analysis of the drivers of aggregate carbon dioxide emissions from fossil fuel combustion and cement production there has been much less analysis of the drivers of greenhouse gases in general and especially of aggregate emissions of greenhouse gases from agriculture forestry and other land uses which we call non industrial emissions in this paper we statistically analyze the relationship between both industrial and non industrial greenhouse gas emissions and economic growth and other potential drivers for 129 countries over the period from 1971 to 2010 our analysis combines the three main approaches in the literature into a single framework for investigating the evolution of emissions and income we find that economic growth is a driver of both industrial and non industrial emissions though economic growth has twice the effect on industrial emissions the time effect is negative for both sources of emissions though this effect is larger for non industrial emissions there is also convergence in emissions intensity for both types of emissions but given these other effects there is no evidence for an environmental kuznets curve

distribution dynamics of co2 emissions this paper uses nonparametric methods to examine the convergence in co2 emissions per capita on a sample of 100 countries for the period 1966 1996 industrial countries show a convergence pattern however there is little evidence of convergence for the whole sample

convergence of carbon dioxide performance across swedish industrial sectors an environmental index approach the overall objective of the paper is to analyze convergence of co2 emission intensity across manufacturing sectors in sweden our approach differs from previous work on carbon convergence in that

debt and deficit fluctuations and the structure of bond markets we analyse the implications of optimal taxation for the stochastic behaviour of debt we show that when a government pursues an optimal fiscal policy under complete markets the value of debt has the same or less persistence than other variables in the economy and it declines in response to shocks that cause the deficit to increase by contrast under incomplete markets debt shows more persistence than other variables and it increases in response to shocks that cause a higher deficit data for us government debt reveals diametrically opposite results from those of complete markets and is much more supportive of bond market incompleteness

are shocks to ecological balance permanent or temporary evidence from lm unit root tests abstract ecological balance can be described as the difference between ecological footprint and biocapacity it is an important indicator of sustainable and environmental development in this regard the current study aims to determine whether policies on ecological balance are effective in g7 and e7 countries covering the period of 1961 2016 to this end we use the lagrange multiplier lm unit root test lm unit root test with structural breaks and fourier lm unit root test as well as more powerful versions of these tests to investigate the stationarity of the ecological balance we also examine the effectiveness of policies regarding ecological footprint and biocapacity the empirical results obtained from both linear and non linear unit root tests show that ecological balance is stationary in germany italy japan the us china india indonesia mexico and turkey while it is non stationary in the remaining five countries however the findings based on the structural break unit root tests suggest that ecological balance is stationary in more countries finally the overall results indicate that shocks to the ecological balance in g7 countries have a more permanent effect than in e7 countries therefore g7 countries can better apply environmental protection policies than e7 countries can in the long term in brazil canada france russia and the uk environmental policies can be effectively implemented to regulate ecological balance

further evidence on the relationship between federal government debt and inflation does an increase in the federal debt cause inflation dwyer 1982 using a par value measure of debt finds no support for such a causal link cox 1985 using a market value measure finds evidence that increases in debt produce higher inflation rates we reconcile these results by demonstrating that failure to capture the interest rate effects inherent in the market value measure accounts for the finding that debt causes inflation incorporating interest rates into our test equations using the market value series leads us to conclude that like the par value series results increases in federal debt do not cause higher rates of inflation

mean reversion in bilateral real exchange rates evidence from the malaysian ringgit this study examines behaviour of the consumer price index cpi based real exchange rates rers of the ringgit against the currencies of malaysia s major trading partners the empirical results which are derived from newly developed tests advocated by lee and strazicich ls 2003 and narayan and popp np 2010 that allow for two breaks in the series provide conflicting results we obtain weaker support for purchasing power parity ppp using the narayan and popp 2010 test by truncating the sampling period into two sub periods we find that ppp holds for majority of the malaysia s bilateral exchange rate vis a vis its major trading partners during the pre crisis period the 1997 currency crisis however has weakened the evidence in favour of ppp hypothesis in the strict sense