Government Expenditures and Revenues: Evidence of Fractional Cointegration in an Asymmetric Modeling |
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Authors: | Luis A Gil-Alana |
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Institution: | (1) Department of Economics, Universidad de Navarra, Pamplona, Spain |
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Abstract: | In this paper, we examine the relationship between the US government expenditures and revenues using a fractional cointegration
framework. In doing so, we permit a much richer degree of flexibility in the dynamic adjustment process toward equilibrium
than in the classical case of cointegration. Moreover, we relax the assumption of a symmetric adjustment process throughout
the use of threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) models in the error correction representation
of the process. The results show that both individual series are non-stationary I(1) and we do not find evidence of cointegration
of any degree. However, if we take into account a structural break at 1973(2), fractional cointegration is found if the underlying
process is autocorrelated, especially in the asymmetric modeling.
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Keywords: | Public revenues Public expenditures Fractional integration Asymmetric modeling Structural breaks |
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