MODELING THE NONLINEAR FISCAL REACTION FUNCTION IN MALAYSIA

2021 ◽  
pp. 1-18
Author(s):  
CHEE LOONG LEE ◽  
RIAYATI AHMAD ◽  
NORLIN Khalid ◽  
ZULKEFLY ABDUL KARIM
Keyword(s):  
Fiscal Policy ◽  
Structural Break ◽  
Unit Root Test ◽  
Nonlinear Behavior ◽  
Break Point ◽  
Fiscal Sustainability ◽  
Reaction Function ◽  
Distributed Lag ◽  
Output Stability ◽  
Fiscal Reaction Function

The fiscal reaction function (FRF) provides valuable insights into a country’s fiscal sustainability and output stability. However, there is no consensus yet on how to model it. Thus, this study investigates the best functional form for the FRF by adopting a nonlinear autoregressive distributed lag approach that accounts for a potential structural break in the data across periods. We examine the case of Malaysia and address the country’s data by using a break-point of the unit root test. The test results indicate the presence of a structural break in the country’s FRF. Moreover, the primary balance of Malaysia has an asymmetrical reaction to the country’s public debt and the output gap. This result suggests that a nonlinear behavior of FRF with a structural break is an accurate approach for the fiscal authority in Malaysia (for example, the Ministry of Finance) in designing prudent fiscal policy. This study finds that an asymmetric fiscal reaction in Malaysia neither guarantees fiscal sustainability nor supports output stability, thus suggesting the need for an independent fiscal council to promote prudent fiscal policy.

scholarly journals Kesinambungan fiskal dan estimasi fiscal reaction function Indonesia tahun 1977-2017

2019 ◽  
Vol 4 (3) ◽  
pp. 267-283
Author(s):  
Akhmad Solikin ◽  
Hilda Choirunnisah
Keyword(s):  
Real Exchange Rates ◽  
Commodity Prices ◽  
Fiscal Sustainability ◽  
Reaction Function ◽  
Debt Burden ◽  
Distributed Lag ◽  
Reaction Functions ◽  
Fiscal Reaction Function ◽  
The Government

This study aims to identify whether Indonesian fiscal condition in 1977–2017 is sustainable as measured by the government responses to debt burden. Studi on fiscal sustainability is very important since failing to identify its occurrence and determinants will detrimental to fiscal and macroeconomic policy. This study uses Auto-Regressive Distributed Lag – Error Correction Mechanism (ARDL-ECM) to estimate short-term and long-term fiscal reaction functions. The result shows that in the long-term the government responds an increase in debt burden by increasing its primary balance and thus it confirms the existence of fiscal sustainability. Furthermore, by estimating fiscal reaction function this study finds that in the long run exchange rate and Asian Financial Crisis in 1998 have significant effects on primary balance; while in the short run real exchange rates, 1998 economic crisis, and commodity prices  affect the primary balance.

scholarly journals Sustainability of Brazilian fiscal policy, once again: corrective policy response over time

2015 ◽  
Vol 45 (2) ◽  
pp. 437-458
Author(s):  
Viviane Luporini
Keyword(s):  
Fiscal Policy ◽  
Policy Response ◽  
Reaction Function ◽  
Average Increase ◽  
Monthly Data ◽  
Percent Increase ◽  
Fiscal Reaction Function ◽  
Primary Surplus ◽  
Sample Window ◽  
Over Time

<title>Abstract</title><p>This paper estimates a fiscal reaction function for Brazil and investigates how the government's fiscal reaction has changed over time when controlling for cyclical variations in output and the relative participation of indexed debt. Using monthly data since 1991, we estimate a rolling reaction function with a one observation step and a sample-window of 12 observations. Our results indicate that the government's fiscal response has been such that a one percent increase in the debt-GDP ratio can be associated to an average increase in the primary surplus of approximately 0.096% over GDP or 9.6 basis points; the government's fiscal reaction has become more stable but less responsive to the debt-income level after 2000 and assumed a declining trend after 2006.</p>

scholarly journals DP 0250 - Fiscal Fatigue and Public Debt Limit in Brazil: are we on sustainable path?

2020 ◽  
pp. 1-28
Author(s):  
Rodrigo Mendes Pereira
Keyword(s):  
Public Debt ◽  
Fiscal Sustainability ◽  
Reaction Function ◽  
Monthly Data ◽  
Fatigue Effect ◽  
Advanced Economies ◽  
Debt Dynamics ◽  
Fiscal Reaction Function ◽  
The Government

In this paper I use Ghosh et al. (2013) approach to assess Brazil’s fiscal sustainability, fiscal fatigue, and public debt limit. Using monthly data for the last 21 years, I estimate Brazil’s fiscal reaction function and an eventual fiscal fatigue effect, which is a lack of government’s will (or capability) to implement higher primary surpluses as a reaction to higher levels of debt. I show that fiscal fatigue occurs at relatively mild levels of debt in Brazil. I also define Brazil’s debt limit, which is the precise level of debt/GDP ratio above which the debt dynamics becomes explosive, public debt becomes unpayable, and the government invariably defaults. I show that the debt limit in Brazil is much lower than the limits that have been estimated for advanced economies.

scholarly journals Fiscal Sustainability and the Fiscal Reaction Function for South Africa

2011 ◽  
Vol 11 (69) ◽  
pp. 1 ◽  
Author(s):  
Charl Jooste ◽  
Alfredo Cuevas ◽  
Ian C. Stuart ◽  
Philippe Burger ◽  
◽  
...  
Keyword(s):  
South Africa ◽  
Fiscal Sustainability ◽  
Reaction Function ◽  
Fiscal Reaction Function

scholarly journals Fiscal Sustainability and the Fiscal Reaction Function for South Africa

2011 ◽  
Author(s):  
Philippe Burger ◽  
Ian Stuart ◽  
Charl Jooste ◽  
Alfredo Cuevas
Keyword(s):  
South Africa ◽  
Fiscal Sustainability ◽  
Reaction Function ◽  
Fiscal Reaction Function

Is the tourism–growth relationship asymmetric in the Cook Islands? Evidence from NARDL cointegration and causality tests

2019 ◽  
Vol 26 (4) ◽  
pp. 658-681 ◽  
Author(s):  
Nikeel Kumar ◽  
Ronald Ravinesh Kumar ◽  
Radika Kumar ◽  
Peter Josef Stauvermann
Keyword(s):  
Structural Breaks ◽  
Structural Break ◽  
Unit Root Test ◽  
Gdp Per Capita ◽  
Cook Islands ◽  
Distributed Lag ◽  
Bidirectional Association ◽  
Per Capita ◽  
Asymmetric Causality ◽  
Asymmetric Cointegration

We examine whether tourism sector development measured by visitor arrivals per capita has asymmetric growth effects in the Cook Islands using quarterly data from 2010Q1 to 2016Q3. Asymmetric cointegration, long-run elasticities, and dynamic multipliers are estimated using the nonlinear autoregressive distributed lag model developed by Shin et al. Asymmetric causality testing is done using the asymmetric vector autoregression approach with insights from Hatemi-J. We identify structural breaks using the Lee and Strazicich multiple endogenous structural break unit root test. The results indicate that a 1% increase in visitor arrivals would increase gross domestic product (GDP) per capita by 0.92%, whereas a 1% decrease in visitor arrivals would decrease GDP per capita by 0.34%. The identified breaks, 2013Q2 and 2015Q3, are positive and significant in the short run only. The causality result confirms a bidirectional association, thus mutually reinforcing the asymmetric relationship between visitor arrivals and economic growth.

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