NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Bing Li

School of Economics and Management
525 Weilun Building, Tsinghua University
Beijing, China

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Institutional Affiliation: Tsinghua University

NBER Working Papers and Publications

September 2016Surplus-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

 
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