01983cas a2200265 a 4500 AALejournalIMF016691 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513574677 1018-5941 BD-DhAAL BD-DhAAL Barhoumi, Karim. Stochastic Trends, Debt Sustainability and Fiscal Policy / Karim Barhoumi, Reda Cherif, Nooman Rebei. Washington, D.C. : International Monetary Fund, 2016. 1 online resource (45 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 We study empirically the reaction of fiscal policy to changes in the permanent and transitory components of GDP in a panel of countries. We find evidence that government spending tends to be counter-cyclical conditional on temporary shocks and pro-cyclical conditional on permanent shocks. We also find no evidence that developing countries are systematically different from developed ones in terms of fiscal policy. We present a theory featuring a fiscal reaction function to the output gap and a measure of debt sustainability. The fiscal impulse response to a permanent (temporary) shock to GDP is positive (negative) as the effect on debt sustainability (current output gap) dominates. The results are mostly sensitive to the relative weight of debt sustainability in the fiscal reaction function as well as to the extent of real rigidities in the economy. Mode of access: Internet Cherif, Reda. Rebei, Nooman. IMF Working Papers; Working Paper ; No. 2016/059 Full text available on IMF http://elibrary.imf.org/view/journals/001/2016/059/001.2016.issue-059-en.xml IMF e-Library