A time-varying fiscal reaction function for Brazil
DOI:
https://doi.org/10.1590/0101-41614911ecrKeywords:
Dívida pública, Sustentabilidade, Função de reação fiscal, modelos variantes no tempo, Filtro de Kalman, suavização por spline penalizado, Cointegração variante no tempoAbstract
This paper evaluates the sustainability of public debt in Brazil using monthly data from January 2003 to June 2016, based on the estimation of fiscal reaction functions with time-varying coefficients. Three estimation methods are considered: Kalman filter, penalized spline smoothing and time-varying cointegration. Besides indicating that the reaction of the primary deficit to variations in the debt/GDP ratio declined over most of the analyzed period, all these methods lead to the conclusion that the Brazilian public debt, given the parameters then in force, reached an unsustainable trajectory in the last years of the sample.
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References
Adedeji, Olumuyiwa S., and Oral Williams. "Fiscal Reaction Functions in the CFA Zone: An Analytical Perspective." IMF Working Papers, October 2007: 21.
Afonso, António, and Sebastian Hauptmeier. "Fiscal behaviour in the European Union: rules, fiscal decentralization and government indebtedness." ECB Working Paper, May 7, 2009: 47.
Akaike, Hirotugu. "Fitting autoregressive models for prediction." Annals of the institute of Statistical Mathematics, June 17, 1969: 5.
Banco Central do Brasil. Dívida líquida e bruta do governo geral. 2016. https://www3.bcb.gov.br/sgspub.
Banco Central do Brasil. "Relatório de Indicadores Fiscais de junho/2016." 2016.
—. Sistema Gerenciador de Séries Temporais (código 4189). 2016. https://www3.bcb.gov.br/sgspub.
Bierens, Herman J., and Luis Filipe Martins. "Time-Varying Cointegration." Econometric Theory, 2010: 1453-1490.
Blanchard, Olivier, Jean-Claude Chouraqui, Robert Hagemann, and Nicola Sartor. "The sustainability of fiscal policy: New answers to an old question." OECD Economic Studies, 1990.
Bohn, Henning. "Are stationarity and cointegration restrictions necessary for the intertemporal budget constraint?" Journal of Monetary Economics, 2007: 1837-1847.
Bohn, Henning. "The Behavior of U.S. Public Debt and Deficits." The Quarterly Journal of Economics (Oxford University Press) 113, no. 3 (1998): 949-963.
Boor, Carl de. A practical guide to splines. Revised. Springer, 2001.
Budina, Nina, and Sweder van Wijnbergen. "Quantitative approaches to fiscal sustainability analysis: a case study of Turkey since the crisis of 2001." World Bank Economic Review, 2008: 119-140.
Burger, Philippe, and Marina Marinkov. "Fiscal rules and regime-dependent fiscal reaction functions: The South African case." OECD Journal on Budgeting, 2012: 31.
Cantoni, Eva, and Trevor Hastie. "Degrees-of-freedom tests for smoothing splines." Biometrika, June 1, 2002: 251-263.
Cavalcanti, Marco A. F. H., and Napoleão L. C. Silva. "Dívida pública, política fiscal e nível de atividade: uma abordagem VAR para o Brasil no período 1995-2008." Economia Aplicada, Outubro/Dezembro 2010: 391-418.
Craven, Peter, and Grace Wahba. "Smoothing noisy data with spline functions: Estimating the correct degree of smoothing by the method of generalized cross-validation." Numerische Mathematik, December 1978: 377–403.
Davig, Troy, and Eric M. Leeper. "Endogeneous monetary policy regime change." Chap. 6 in NBER International Seminar on Macroeconomics 2006, edited by Lucrezia Reichlin and Kenneth West, 345 – 391. University of Chicago Press, 2008.
Dill, Helena Cristina. "Política fiscal, dívida pública e a atividade econômica." Master’s Essay. Paraná: Universidade Federal do Paraná, August 11, 2012.
Égert, Balász. "Fiscal Policy Reaction to the Cycle in the OECD: Pro- or Counter-cyclical?" OECD Economics Department Working Papers, May 6, 2010: 47.
Eilers, Paul H. C., and Brian D. Marx. "Flexible smoothing with B-splines and penalties (with comments and rejoinder)." Statistical Science, 1996: 89-121.
Elliot, Graham, Thomas J. Rothemberg, and James H. Stock. "Efficient tests for an autoregressive unit root." Econometrica, July 1996: 813-836.
Fincke, Bettina, and Alfred Greiner. "How to assess debt sustainability? Some theory and empirical evidence for selected euro area countries." Applied Economics, 2012: 3717-3724.
Granger, Clive William John. "Developments in the Study of Cointegrated Economic Variables." Oxford Bulletin of Economics and Statistics, August 1986: 213-218.
Greiner, Alfred, and Göran Kauermann. "Sustainability of US public debt: estimating smoothing spline regressions." Economic Modelling, March 2007: 350-364.
Hamilton, James D., and Marjorie A. Flavin. "On the limitations of government borrowing: a framework for empirical testing." American Economic Review, September 1986: 808-819.
Hamming, Richard Wesley. Numerical Methods for Scientists and Engineers. Second. New York: McGraw-Hill, Inc., 1973.
Harvey, Andrew C. Forecasting, Structural Time Series Models and the Kalman Filter. Cambridge: Cambridge University Press, 1989.
Hastie, Trevor, and Robert Tibshirani. "Varying-coefficient models." Journal of the Royal Statistical Society. Series B (Methodological), 1993: 757-796.
Hastie, Trevor, Robert Tibshirani, and Jerome Friedman. The Elements of Statistical Learning. Data mining, inference and prediction. Second. New York: Springer-Verlag, 2009.
IBGE. 2016. https://seriesestatisticas.ibge.gov.br/.
Instituto Brasileiro de Economia. "Monitor do PIB/FGV." Portal IBRE. n.d. http://portalibre.fgv.br/main.jsp?lumChannelId=8A7C82C5593FD36B015D5C57E75715CA.
Issler, João Vitor, and Luiz Renato Lima. "Public debt sustainability and endogenous seigniorage in Brazil: time series evidence from 1947-92." Journal of Development Economics, June 2000: 131-147.
Jesus, Cleiton Silva de. "A Macroeconomia da Política Fiscal: Modelo Dinâmico e Evidências para o Brasil." Concurso de Monografia em Finanças Públicas. 2013. 78.
Johansen, Soren. "Statistical Analysis of Cointegration Vectors." Journal of Economic Dynamics and Control, 1988: 231-254.
Kalman, Rudolf Emil. "A New Approach to Linear Filtering and Prediction Problems." Journal of Basic Engineering, 1960: 35-45.
Kalman, Rudolf Emil, and Richard S. Bucy. "New Results in Linear Filtering and Prediction Theory." Journal of Basic Enginnering, 1961: 85-108.
Khalid, Mahmood, Wasim Shahid Malik, and Abdul Sattar. "The Fiscal Reaction Function and the Transmission Mechanism for Pakistan." The Pakistan Development Review, 2007: 435-447.
Lima, Luiz Renato, and Andrei Simonassi. "Dinâmica não-linear e sustentabilidade da dívida pública brasileira." Pesquisa e Planejamento Econômico, August 2005: 227-244.
Lopes, Denilson Torcate. "Função de reação da política fiscal e intolerância da dívida: o caso brasileiro no período pós-real." Ribeirão Preto: Universidade de São Paulo, 2007.
Luporini, Viviane. "A Sustentabilidade da Dívida Mobiliária Federal Brasileira: Uma Investigação Adicional." Análise Econômica, 2001: 69-84.
—. "Sustainability of Brazilian Fiscal Policy, Once Again: Corrective Policy Response Over Time." Estudos Econômicos, April/June 2015.
Martins, Luis Filipe. "Bootstrap Tests for Time Varying Cointegration." Econometric Reviews, 2018: 466-483.
Megale, Caio. "Fatores externos e risco-país." 27th BNDES Economics Award. Rio de Janeiro: PUC-Rio, 2003. 96.
Mello, Luiz de. "Estimating a fiscal reaction function: the case of debt sustainability in Brazil." Applied Economics, 2008: 271-284.
Mendonça, Mário Jorge Cardoso de, Cláudio Hamilton Matos dos Santos, and Adolfo Sachsida. "Revisitando a função de reação fiscal no Brasil pós-Real: uma abordagem de mudanças de regime." Estudos Econômicos, October/December 2009: 873-894.
Mutuku, Cyrus. "Assessing fiscal policy cyclicality and sustainability: a fiscal reaction function for Kenya." Journal of Economics Library, 2015: 173-191.
Ng, Serena, and Pierre Perron. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power." Econometrica, December 12, 2003: 1519-1554.
Nguyen, Pascal. "Macroeconomic factors and Japan’s industry risk." Journal of Multinational Financial Management, April 2007: 173-185.
Ourives, Lígia Helena da Cruz. "A Sustentabilidade da Dívida Pública Brasileira na Presença de Déficit Quase-Fiscal." Public Finance: VII National Treasury Award. Vol. 1. Brasília: Universidade de Brasília, 2003. 15-79.
Park, Joon Y., and Sang B. Hanh. "Cointegrating Regressions with Time Varying Coefficients." Econometric Theory, 1999: 664-703.
Penalver, Adrian, and Gregory Thwaites. "Fiscal rules for debt sustainability in emerging markets: the impact of volatility and default risk." Bank of England Working Paper, September 2006: 26.
Penha Cysne, Rubens, and Carlos Thadeu de F. Gomes. "Brasil: O Custo do Atraso no Equacionamento da Questão Fiscal." Brazilian Journal of Political Economy, October/December 2017: 704-718.
Rocha, Fabiana. "Long-run limits on the Brazilian government debt. Revista Brasileira de Economia." Revista Brasileira de Economia, October 1997: 447-470.
Simonassi, Andrei Gomes. "Função de resposta fiscal, múltiplas quebras estruturais e a sustentabilidade da dívida pública no Brasil." XXXV Encontro Nacional de Economia. Recife, 2007.
—. "Reação fiscal sob mudanças estruturais e a solvência da economia brasileira." Mimeo. Ceará: CAEN/UFC, 2013.
Song, Joonhyuk. "An Empirical Evaluation of Fiscal Sustainability Near and Far." The Korean Economic Review, 2009: 133-164.
Stoica, Tiberiu, and Alexandru Leonte. "Estimating a fiscal reaction function for Greece." International Proceedings of Economics Development and Research, 2011: 391-395.
Tesouro Nacional. "Various works." 2016.
The Annals of Statistics. "Linear smoothers and additive models (with discussion)." June 1989: 453-510.
Trehan, Bharat, and Carl E. Walsh. "Testing intertemporal budget constraints: theory and applications to U.S federal budget and current account deficits." Journal of Money, Credit and Banking, May 1991: 206-223.
Turrini, Alessandro. "Fiscal policy and the cycle in the Euro Area: the role of government revenue and expenditure." Economic Papers, May 2008.
Uctum, Merih, Thom Thurston, and Remzi Uctum. "Public debt, the unit root hypothesis and structural breaks: a multi-country analysis." Economica, January 20, 2006: 129-156.
Afonso, António, and Sebastian Hauptmeier. "Fiscal behaviour in the European Union: rules, fiscal decentralization and government indebtedness." ECB Working Paper, May 7, 2009: 47.
Akaike, Hirotugu. "Fitting autoregressive models for prediction." Annals of the institute of Statistical Mathematics, June 17, 1969: 5.
Banco Central do Brasil. Dívida líquida e bruta do governo geral. 2016. https://www3.bcb.gov.br/sgspub.
Banco Central do Brasil. "Relatório de Indicadores Fiscais de junho/2016." 2016.
—. Sistema Gerenciador de Séries Temporais (código 4189). 2016. https://www3.bcb.gov.br/sgspub.
Bierens, Herman J., and Luis Filipe Martins. "Time-Varying Cointegration." Econometric Theory, 2010: 1453-1490.
Blanchard, Olivier, Jean-Claude Chouraqui, Robert Hagemann, and Nicola Sartor. "The sustainability of fiscal policy: New answers to an old question." OECD Economic Studies, 1990.
Bohn, Henning. "Are stationarity and cointegration restrictions necessary for the intertemporal budget constraint?" Journal of Monetary Economics, 2007: 1837-1847.
Bohn, Henning. "The Behavior of U.S. Public Debt and Deficits." The Quarterly Journal of Economics (Oxford University Press) 113, no. 3 (1998): 949-963.
Boor, Carl de. A practical guide to splines. Revised. Springer, 2001.
Budina, Nina, and Sweder van Wijnbergen. "Quantitative approaches to fiscal sustainability analysis: a case study of Turkey since the crisis of 2001." World Bank Economic Review, 2008: 119-140.
Burger, Philippe, and Marina Marinkov. "Fiscal rules and regime-dependent fiscal reaction functions: The South African case." OECD Journal on Budgeting, 2012: 31.
Cantoni, Eva, and Trevor Hastie. "Degrees-of-freedom tests for smoothing splines." Biometrika, June 1, 2002: 251-263.
Cavalcanti, Marco A. F. H., and Napoleão L. C. Silva. "Dívida pública, política fiscal e nível de atividade: uma abordagem VAR para o Brasil no período 1995-2008." Economia Aplicada, Outubro/Dezembro 2010: 391-418.
Craven, Peter, and Grace Wahba. "Smoothing noisy data with spline functions: Estimating the correct degree of smoothing by the method of generalized cross-validation." Numerische Mathematik, December 1978: 377–403.
Davig, Troy, and Eric M. Leeper. "Endogeneous monetary policy regime change." Chap. 6 in NBER International Seminar on Macroeconomics 2006, edited by Lucrezia Reichlin and Kenneth West, 345 – 391. University of Chicago Press, 2008.
Dill, Helena Cristina. "Política fiscal, dívida pública e a atividade econômica." Master’s Essay. Paraná: Universidade Federal do Paraná, August 11, 2012.
Égert, Balász. "Fiscal Policy Reaction to the Cycle in the OECD: Pro- or Counter-cyclical?" OECD Economics Department Working Papers, May 6, 2010: 47.
Eilers, Paul H. C., and Brian D. Marx. "Flexible smoothing with B-splines and penalties (with comments and rejoinder)." Statistical Science, 1996: 89-121.
Elliot, Graham, Thomas J. Rothemberg, and James H. Stock. "Efficient tests for an autoregressive unit root." Econometrica, July 1996: 813-836.
Fincke, Bettina, and Alfred Greiner. "How to assess debt sustainability? Some theory and empirical evidence for selected euro area countries." Applied Economics, 2012: 3717-3724.
Granger, Clive William John. "Developments in the Study of Cointegrated Economic Variables." Oxford Bulletin of Economics and Statistics, August 1986: 213-218.
Greiner, Alfred, and Göran Kauermann. "Sustainability of US public debt: estimating smoothing spline regressions." Economic Modelling, March 2007: 350-364.
Hamilton, James D., and Marjorie A. Flavin. "On the limitations of government borrowing: a framework for empirical testing." American Economic Review, September 1986: 808-819.
Hamming, Richard Wesley. Numerical Methods for Scientists and Engineers. Second. New York: McGraw-Hill, Inc., 1973.
Harvey, Andrew C. Forecasting, Structural Time Series Models and the Kalman Filter. Cambridge: Cambridge University Press, 1989.
Hastie, Trevor, and Robert Tibshirani. "Varying-coefficient models." Journal of the Royal Statistical Society. Series B (Methodological), 1993: 757-796.
Hastie, Trevor, Robert Tibshirani, and Jerome Friedman. The Elements of Statistical Learning. Data mining, inference and prediction. Second. New York: Springer-Verlag, 2009.
IBGE. 2016. https://seriesestatisticas.ibge.gov.br/.
Instituto Brasileiro de Economia. "Monitor do PIB/FGV." Portal IBRE. n.d. http://portalibre.fgv.br/main.jsp?lumChannelId=8A7C82C5593FD36B015D5C57E75715CA.
Issler, João Vitor, and Luiz Renato Lima. "Public debt sustainability and endogenous seigniorage in Brazil: time series evidence from 1947-92." Journal of Development Economics, June 2000: 131-147.
Jesus, Cleiton Silva de. "A Macroeconomia da Política Fiscal: Modelo Dinâmico e Evidências para o Brasil." Concurso de Monografia em Finanças Públicas. 2013. 78.
Johansen, Soren. "Statistical Analysis of Cointegration Vectors." Journal of Economic Dynamics and Control, 1988: 231-254.
Kalman, Rudolf Emil. "A New Approach to Linear Filtering and Prediction Problems." Journal of Basic Engineering, 1960: 35-45.
Kalman, Rudolf Emil, and Richard S. Bucy. "New Results in Linear Filtering and Prediction Theory." Journal of Basic Enginnering, 1961: 85-108.
Khalid, Mahmood, Wasim Shahid Malik, and Abdul Sattar. "The Fiscal Reaction Function and the Transmission Mechanism for Pakistan." The Pakistan Development Review, 2007: 435-447.
Lima, Luiz Renato, and Andrei Simonassi. "Dinâmica não-linear e sustentabilidade da dívida pública brasileira." Pesquisa e Planejamento Econômico, August 2005: 227-244.
Lopes, Denilson Torcate. "Função de reação da política fiscal e intolerância da dívida: o caso brasileiro no período pós-real." Ribeirão Preto: Universidade de São Paulo, 2007.
Luporini, Viviane. "A Sustentabilidade da Dívida Mobiliária Federal Brasileira: Uma Investigação Adicional." Análise Econômica, 2001: 69-84.
—. "Sustainability of Brazilian Fiscal Policy, Once Again: Corrective Policy Response Over Time." Estudos Econômicos, April/June 2015.
Martins, Luis Filipe. "Bootstrap Tests for Time Varying Cointegration." Econometric Reviews, 2018: 466-483.
Megale, Caio. "Fatores externos e risco-país." 27th BNDES Economics Award. Rio de Janeiro: PUC-Rio, 2003. 96.
Mello, Luiz de. "Estimating a fiscal reaction function: the case of debt sustainability in Brazil." Applied Economics, 2008: 271-284.
Mendonça, Mário Jorge Cardoso de, Cláudio Hamilton Matos dos Santos, and Adolfo Sachsida. "Revisitando a função de reação fiscal no Brasil pós-Real: uma abordagem de mudanças de regime." Estudos Econômicos, October/December 2009: 873-894.
Mutuku, Cyrus. "Assessing fiscal policy cyclicality and sustainability: a fiscal reaction function for Kenya." Journal of Economics Library, 2015: 173-191.
Ng, Serena, and Pierre Perron. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power." Econometrica, December 12, 2003: 1519-1554.
Nguyen, Pascal. "Macroeconomic factors and Japan’s industry risk." Journal of Multinational Financial Management, April 2007: 173-185.
Ourives, Lígia Helena da Cruz. "A Sustentabilidade da Dívida Pública Brasileira na Presença de Déficit Quase-Fiscal." Public Finance: VII National Treasury Award. Vol. 1. Brasília: Universidade de Brasília, 2003. 15-79.
Park, Joon Y., and Sang B. Hanh. "Cointegrating Regressions with Time Varying Coefficients." Econometric Theory, 1999: 664-703.
Penalver, Adrian, and Gregory Thwaites. "Fiscal rules for debt sustainability in emerging markets: the impact of volatility and default risk." Bank of England Working Paper, September 2006: 26.
Penha Cysne, Rubens, and Carlos Thadeu de F. Gomes. "Brasil: O Custo do Atraso no Equacionamento da Questão Fiscal." Brazilian Journal of Political Economy, October/December 2017: 704-718.
Rocha, Fabiana. "Long-run limits on the Brazilian government debt. Revista Brasileira de Economia." Revista Brasileira de Economia, October 1997: 447-470.
Simonassi, Andrei Gomes. "Função de resposta fiscal, múltiplas quebras estruturais e a sustentabilidade da dívida pública no Brasil." XXXV Encontro Nacional de Economia. Recife, 2007.
—. "Reação fiscal sob mudanças estruturais e a solvência da economia brasileira." Mimeo. Ceará: CAEN/UFC, 2013.
Song, Joonhyuk. "An Empirical Evaluation of Fiscal Sustainability Near and Far." The Korean Economic Review, 2009: 133-164.
Stoica, Tiberiu, and Alexandru Leonte. "Estimating a fiscal reaction function for Greece." International Proceedings of Economics Development and Research, 2011: 391-395.
Tesouro Nacional. "Various works." 2016.
The Annals of Statistics. "Linear smoothers and additive models (with discussion)." June 1989: 453-510.
Trehan, Bharat, and Carl E. Walsh. "Testing intertemporal budget constraints: theory and applications to U.S federal budget and current account deficits." Journal of Money, Credit and Banking, May 1991: 206-223.
Turrini, Alessandro. "Fiscal policy and the cycle in the Euro Area: the role of government revenue and expenditure." Economic Papers, May 2008.
Uctum, Merih, Thom Thurston, and Remzi Uctum. "Public debt, the unit root hypothesis and structural breaks: a multi-country analysis." Economica, January 20, 2006: 129-156.
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How to Cite
Campos, E., & Cysne, R. P. (2019). A time-varying fiscal reaction function for Brazil. Estudos Econômicos (São Paulo), 49(1), 5-38. https://doi.org/10.1590/0101-41614911ecr
