Directional analysis of fiscal sustainability: Revisiting Domar's debt sustainability condition

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2 Citations (Scopus)

Abstract

This study evaluates directional accuracy of long-term interest rate and nominal GDP growth forecasts made by the U.S. Congressional Budget Office (CBO), the Office of Management and Budget (OMB), and private forecasters by applying a recently developed market-timing test. This study also investigates whether these forecasts provide useful indicators of the well-known Domar's fiscal sustainability condition and whether directional accuracy differs between ruling parties and the state of the economy. This study finds that the CBO forecast for Domar's condition is useful with a two-year horizon, whereas OMB and private forecasts are only useful with a one-year horizon. The directional accuracy of the forecasts does not differ between expansion and recession.

Original languageEnglish
Pages (from-to)189-201
Number of pages13
JournalInternational Review of Economics and Finance
Volume41
DOIs
Publication statusPublished - 2016 Jan 1

Keywords

  • Debt sustainability
  • Forecast evaluation
  • Government forecasts
  • Market-timing test
  • Nonparametric methods

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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