01937cas a2200253 a 4500 AALejournalIMF004275 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451864427 1018-5941 BD-DhAAL BD-DhAAL Celasun, Oya. On the Properties of Various Estimators for Fiscal Reaction Functions / Oya Celasun, Joong Kang. Washington, D.C. : International Monetary Fund, 2006. 1 online resource (29 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper evaluates the bias of the least-squares-with-dummy-variables (LSDV) method in fiscal reaction function estimations. A growing number of studies estimate fiscal policy reaction functions-that is, relationships between the primary fiscal balance and its determinants, including public debt and the output gap. A previously unexplored methodological issue in these estimations is that lagged debt is not a strictly exogenous variable, which biases the LSDV estimator in short panels. We derive the bias analytically to understand its determinants and run Monte Carlo simulations to assess its likely size in empirical work. We find the bias to be smaller than the bias of the LSDV estimator in a comparable autoregressive dynamic panel model and show the LSDV method to outperform a number of alternatives in estimating fiscal reaction functions. Mode of access: Internet Kang, Joong. IMF Working Papers; Working Paper ; No. 2006/182 Full text available on IMF http://elibrary.imf.org/view/journals/001/2006/182/001.2006.issue-182-en.xml IMF e-Library