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A conceptual issue with an IMF study

Comments on Henry Ergas “Deceptive attack on Howard's record”, 14/01/2013, http://www.theaustralian.com.au/opinion/columnists/deceptive-attack-on-howards-record/story-fn7078da-1226553110377

I could not be sure the exact specifications of the IMF econometric exercises, but was assuming they include the debt related variable as opposed to its lag or lags.

If my assumption is correct, then there can be some conceptual difficulties with that specification.

One would naturally think that when debt level increases the government deficit also increases in the same year.

So to test the influence of debt on deficit, it should use past debt on the current deficit.

I would argue that the IMF should examine its specifications and re-estimate the relationships.

It should not be constrained by the original specification by Bohn (1998).

Of course, the exact specifications are not clearly shown in the IMF paper, so my assumption may be incorrect.

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