Debt ceiling and fiscal sustainability in Brazil: a quantile autoregression approach

Year: 
2006
Autor(s): 
Luiz Renato Regis de Oliveira Lima; Raquel Menezes Bezerra Sampaio; Wagner Piazza Gaglianone
Serie number: 631
Abstract: 
In this paper we investigate fiscal sustainability by using a quantile autoregression (QAR) model. We propose a novel methodology to separate periods of nonstationarity from stationary ones, which allows us to identify various trajectories of public debt that are compatible with fiscal sustainability. We use such trajectories to construct a debt ceiling, that is, the largest value of public debt that does not jeopardize long-run fiscal sustainability. We make out-of-sample forecast of such a ceiling and show how it could be used by Policy makers interested in keeping the public debt on a sustainable path. We illustrate the applicability of our results using Brazilian data.