School of Economics and Management
525 Weilun Building, Tsinghua University
Institutional Affiliation: Tsinghua University
NBER Working Papers and Publications
|September 2016||Surplus-Debt Regressions|
with Eric M. Leeper: w22662
Single-equation estimates of fiscal reaction functions, which relate primary surpluses to past debt-GDP ratios and control variables, are subject to potentially serious simultaneity bias that can produce misleading inferences about fiscal behavior. Biases arise from failure to model the general equilibrium relationships between government debt and surpluses, relationships that bring in the forward-looking nature of nominal debt valuation and the role of monetary policy in that valuation.
Published: Leeper, Eric M. & Li, Bing, 2017. "Surplus–debt regressions," Economics Letters, Elsevier, vol. 151(C), pages 10-15. citation courtesy of