A Commentary on U.S. Sovereign Debt Persistence and Non-Linear Fiscal Adjustment

The purpose of this paper is to show how the self-exciting threshold autoregressive (SETAR) model could be an appropriate econometric framework for characterizing the dynamics of the U.S. public debt/GDP ratio after the Bretton Woods collapse. Our preferred SETAR specifications are capable in capturing the main stylized facts of the U.S. public debt/GDP ratio between 1974 and 2024. In addition, the estimated SETAR models are consistent with several theoretical frameworks that seek to explain the behavior of the U.S. public debt/GDP ratio before and after the Global Financial Crisis (GFC). Finally, the paper provides some arguments on why the previous studies that use the exponential smooth threshold autoregressive (ESTAR) models, or SETAR-type models for the first differences of the U.S. public debt/GDP ratio, are potentially mis-specified, both on econometric and economic grounds.