Date stamping on the explosiveness of public debt: Evidence from the USA

Abstract

This paper examines the existence of explosive behaviours of public debt in the USA. Using the Supremum Augmented Dickey-Fuller (SADF) and Generalised SADF tests on data ranging from 1966 to 2018, we show that there is evidence of the beginning and end of several public debt explosiveness in the US. We observe that each explosiveness originates when the Backward Supremum Augmented Dickey-Fuller (BSADF) statistic exceeds its corresponding 95 per cent critical value and ends when its BSADF falls below that critical value. Further analysis shows that the explosive behaviours are dynamically positively correlated with trade openness and unemployment. The detected explosive debt suggests that fiscal sustainability is challenged and sound fiscal policies are absent. In order to keep on financing the costs of new debt issuance, government revenue sides are discussed.