Fiscal sustainability in India: evidence from Markov switching and threshold regression models

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Vaseem Akram ◽  
Badri Narayan Rath
Keyword(s):  
Regression Model ◽  
Public Debt ◽  
Markov Switching ◽  
Fiscal Sustainability ◽  
Optimum Level ◽  
Fiscal Deficit ◽  
Threshold Regression ◽  
Content Type ◽  
Sustainability Issue ◽  
Threshold Regression Model

PurposeThe purpose of this study is to examine the fiscal sustainability issue by dividing the fiscal deficit into high and low regimes using the quarterly data from 1997: Q1 to 2013: Q3. Further, we obtain the optimum level of public debt at which fiscal sustainability can be achieved.Design/methodology/approachThis study uses the Markov Switching-Vector Error Correction Model (MS-VECM) for examining fiscal sustainability and threshold regression model to obtain the optimum level of debt.FindingsThe results derived from MS-VECM reveal the evidence in favor of fiscal sustainability during low fiscal deficit periods. Similarly, using a threshold regression model, the optimum public debt as a percentage to GDP seems to be around 21 per cent on a quarterly basis, beyond this level, public debt hurts economic growth.Practical implicationsFrom the policy front, the government of India should cut down the fiscal deficit only if debt reaches beyond a threshold level.Originality/valueNoting that the vast literature has focused on examining the fiscal sustainability in India, the novelty of this study is to examine the fiscal sustainability by considering high and low deficits regimes using a non-linear approach.

Policy asymmetries and fiscal sustainability: evidence from Nigeria

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Opeoluwa Adeniyi Adeosun ◽  
Olumide Steven Ayodele ◽  
Olajide Clement Jongbo
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Markov Switching ◽  
Fiscal Sustainability ◽  
Constant Parameter ◽  
Policy Rule ◽  
Content Type ◽  
Sustainability Analysis ◽  
Debt Dynamics ◽  
Fiscal Balance

PurposeThis study examines and compares different specifications of the fiscal policy rule in the fiscal sustainability analysis of Nigeria.Design/methodology/approachThis is methodologically achieved by estimating the baseline constant-parameter and Markov regime switching fiscal models. The asymmetric autoregressive distributed lag fiscal model is also employed to substantiate the differential responses of fiscal authorities to public debt.FindingsThe baseline constant-parameter fiscal model provides mixed results of sustainable and unsustainable fiscal policy. The inconclusiveness is adduced to instability in primary fiscal balance–public debt dynamics. This makes it necessary to capture regime switches in the fiscal policy rule. The Markov switching estimations show a protracted fiscal unsustainable regime that is inconsistent with the intertemporal budget constraint (IBC). The no-Ponzi game and debt stabilizing results of the Markov switching fiscal model further revealed that the transversality and debt stability conditions were not satisfied. Additional findings from the asymmetric autoregressive model estimation show that fiscal consolidation responses vary with contraction and expansion in output and spending, coupled with downturns and upturns in public debt dynamics in both the long and short run. These findings thus confirm the presence of asymmetries in the fiscal policy authorities' reactions to public debt. Further, additional evidences show the violation of the IBC which is exacerbated by the deleterious effect of the pro-cyclical fiscal policy response in boom on the improvement of the primary fiscal balance.Originality/valueThis study deviates from the extant literature by accommodating time variation, periodic switches and fiscal policy asymmetries in the fiscal sustainability analysis of Nigeria.

scholarly journals An investigation on impacts of structural changes in stocks’ past returns on financial analysts’ earnings forecasting rationality

2019 ◽  
Vol 3 (2) ◽  
pp. 188-202
Author(s):  
Zhixin Kang
Keyword(s):  
Regression Model ◽  
Structural Breaks ◽  
Structural Changes ◽  
Financial Analysts ◽  
Earnings Forecasts ◽  
Threshold Regression ◽  
Content Type ◽  
Time Period ◽  
Earnings Forecasting ◽  
Threshold Regression Model

Purpose The purpose of this paper is to test whether financial analysts’ rationality in making stocks’ earnings forecasts is homogenous or not across different information regimes in stocks’ past returns. Design/methodology/approach By treating stocks’ past returns as the information variable in this study, the authors employ a threshold regression model to capture and test threshold effects of stocks’ past returns on financial analysts’ rationality in making earnings forecasts in different information regimes. Findings The results show that three significant structural breaks and four respective information regimes are identified in stocks’ past returns in the threshold regression model. Across the four different information regimes, financial analysts react to stocks’ past returns quite differently when making one-quarter ahead earnings forecasts. Furthermore, the authors find that financial analysts are only rational in a certain information regime of stocks’ past returns depending on a certain return-window such as one-quarter, two-quarter or four-quarter time period. Originality/value This study is different from those in the existing literature by arguing that there could exist heterogeneity in financial analysts’ rationality in making earnings forecasts when using stocks’ past returns information. The finding that financial analysts react to stocks’ past returns differently in the different information regimes of past returns adds value to the research on financial analysts’ rationality.

The threshold effect of firm size on technological innovation: examination of panel data from China

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Xiaoxue Zhou ◽  
Yu Li ◽  
Yao Zhang
Keyword(s):  
Panel Data ◽  
Regression Model ◽  
Technological Innovation ◽  
Firm Size ◽  
Manufacturing Sector ◽  
Threshold Effect ◽  
Nonlinear Relationship ◽  
Threshold Regression ◽  
Content Type ◽  
Threshold Regression Model

PurposeThe purpose of this paper is to explore the threshold effect of firm size on technological innovation using panel data from 2007 to 2012 for listed enterprises in China's manufacturing sector.Design/methodology/approachConsidering the aim of research question is to examine the nonlinear relationship, this paper utilizes the threshold regression proposed by Hansen's (2000).FindingsBased on a threshold regression model using panel data from 2007 to 2012 for listed enterprises in China's manufacturing sector, we find a series of new results. This nonlinear relationship is under the restrictions and impacts of various factors, such as industry characteristics and government subsidies. The results suggest that the threshold regression model well explains the complicated nonlinear relationship and transition process, and it can also shed light on management practice and policy.Originality/valueThere are categorical arguments regarding why firm size is not as effective as before in explaining the monotonic principle of industrial innovation, especially for establishing an effective industrial policy in a particular situation. One of the important reasons is that we have begun to adopt a new perspective from the nonlinear view on the relationship between firm size and industrial innovation. In this study, we have examined the threshold effect of firm size on industrial technological innovation, which is the most representative nonlinear relationship.

scholarly journals Analysis of Australia’s Fiscal Vulnerability to Crisis

2021 ◽  
Vol 14 (7) ◽  
pp. 297
Author(s):  
Gulasekaran Rajaguru ◽  
Safdar Ullah Khan ◽  
Habib-Ur Rahman
Keyword(s):  
Regression Model ◽  
Public Debt ◽  
Budget Deficit ◽  
Threshold Model ◽  
Threshold Level ◽  
Sovereign Default ◽  
Threshold Regression ◽  
Alternative Measures ◽  
Primary Surplus ◽  
Threshold Regression Model

Fiscal vulnerability, like a contagion, poses a threat to financial sector stability, which can lead towards sovereign default. This study aimed to assess fiscal vulnerability to crisis by investigating the Australian economy’s gross public debt, net public debt, and net financial liabilities. We used a threshold regression model and compared results with the baseline deficit–debt framework of analysis. The results of the base model suggested that the economy is fiscally sustainable, and that the primary surplus remains unaffected by increasing levels of public debt. In contrast, the threshold regression model indicated that the increasing level of debt has eroded primary surplus below the threshold level of 30.89% of public debt to GDP. These results need further investigation. Therefore, we modified our basic threshold model to capture budget deficit and surplus as a threshold in response to changes in public debt. The results from the sequential threshold regression model using the debt to GDP ratio and primary budget surplus identifying the periods of 1991, 1992, 2008, 2009, 2011 and 2019 as times of likely vulnerability to fiscal crisis. The overall results confirmed that the primary surplus remained sustainable over the estimated threshold level of public debt in all other sample periods and these findings persisted across alternative measures of public debt.

scholarly journals Fiscal sustainability in developing Asia – new evidence from panel correlated common effect model

2019 ◽  
Vol 27 (1) ◽  
pp. 66-80 ◽  
Author(s):  
Duy-Tung Bui
Keyword(s):  
Public Debt ◽  
Developing Economies ◽  
Fiscal Sustainability ◽  
Debt Sustainability ◽  
Content Type ◽  
Long Run ◽  
Heterogeneous Effects ◽  
Sustainability Issue ◽  
Asian Economies ◽  
Common Correlated Effects

Purpose The purpose of this paper is to investigate the problem of fiscal sustainability for a panel of developing Asian economies. Design/methodology/approach In this study, cross-section dependence and heterogeneity are controlled while estimating the fiscal reaction function, which shows how governments react to the accumulation of public debt. The study employs the common correlated effects mean group estimator in Pesaran (2006) for a panel of 22 developing Asian economies for the period 1999‒2017. Findings It is found that the fiscal sustainability issue in the region is not so benign as in previous studies. Overall, fiscal policy is unsustainable, even for the nonlinear fiscal rule. Country-specific long-run coefficients are also examined in the study. Research limitations/implications The findings show that many developing economies in the region could not satisfy the intertemporal budget constraint, which raises concerns about debt sustainability in the area, especially for the post-crisis period. Originality/value This study investigates whether governments can maintain the sustainability of public finances in the long-run, if the ratios of public debt over GDP and primary deficit over GDP continue their recent problematic trends. Another novelty is controlling for heterogeneous effects among the countries in the region to give a more precise picture of debt sustainability. The empirical evidence also supports that insolvency risk can occur at low levels of public debt.

Sign in / Sign up

Export Citation Format

Share Document