Nominal interest rates and stationarity

Cerrato, Mario; Kim, Hyunsok; MacDonald, Ronald

doi:10.1007/s11156-012-0296-x

Cited by 5 publications

(2 citation statements)

References 8 publications

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“…However, it should be noted that the non-stationarity of long-run nominal interest rates may hold for the employed US data from 1950:2 to 1988:4. But even for the US, recent empirical studies report strong evidence for the null of (break) stationarity for a wide range of nominal interest rates between 1985 and 2004 (Cerrato, Kim and Macdonald, 2010). Furthermore, German nominal long-run interest rates show a different picture.…”

Section: F Smentioning

confidence: 99%

Does Wagner's Law Ruin the Sustainability of German Public Finances?

Priesmeier¹,

Koester²

2013

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Abstract:The empirical and theoretical literature on long-term relationships in public finance is dominated by two approaches: Fiscal sustainability and Wagner's law of an increasing state activity. In this paper, we argue that these two relationships should be analyzed simultaneously and not separately. We show how Wagner's law might influence fiscal sustainability and how the interaction of the two can be modelled using vector error correction models that include public expenditures, revenues and GDP. For Germany, we find strong evidence for Wagner's law throughout the whole period analyzed , while our results indicate sustainability of public finances only until 1973. We show that, for the period after 1973, it is the interaction of permanent expenditure increases and revenue reductions resulting from fiscal policy reactions to the oil crisis and Wagner's law that ruins the sustainability of public finances in Germany. Our findings underline the importance of the German debt brake for re-establishing sustainable public finances even under Wagner's law.

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Section: F Smentioning

confidence: 99%

Does Wagner's Law Ruin the Sustainability of German Public Finances?

Priesmeier¹,

Koester²

2013

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“…13 To avoid potentially spurious and endogenously biased relationships between GDP and expenditures, an endogenous equilibrium model should be applied. 14 Legrenzi and Milas (2002a,b) show that, within such a framework, Wagner's law cannot be rejected if the long-run domestic income elasticity of total general expenditures in current prices is estimated to be higher than unity. Formally, this implies the following cointegration regression of public spending on economic development,…”

Section: Wagner's Law: General Approach and Testable Hypothesismentioning

confidence: 99%