Title

Critical thresholds for budget consolidations: a semi-parametric approach

Source of Publication

Applied Economics Letters

Abstract

© 2015 Taylor & Francis. While a lot is known regarding the determinants of successful fiscal consolidations, previous studies do not allow for the possibility of nonlinearities in factors impacting budget consolidations. By using a semi-parametric modelling approach employing penalized spline regression on a data-set for 28 OECD countries for the period 1978–2007, we demonstrate the existence of critical thresholds not only for the initial debt level but also for the accompanying monetary policy. The latter result shows when monetary policy matters most and suggests, counter to previous studies, that too lax a monetary policy decreases the success probability of a fiscal adjustment episode.

Document Type

Article

First Page

1293

Last Page

1297

Publication Date

1-1-2015

DOI

10.1080/13504851.2015.1026574

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