Government bonds are usually traded between the financial institutions and the Fed during the open market operations. These operations impact the bank reserves, subsequently influencing the monetary base. The monetary base and government bonds may portray a common trend and government debt could potentially bind the central bank to debt monetization. This paper, using monthly data on federal government debt and the monetary base from 1947:1 to 2018:10, investigates the presence of a long-run equilibrium relationship between the two variables and as to how the long-run equilibrium relationship vary in the short-run. Threshold cointegration tests find evidence of a long-run equilibrium relationship. Estimates of the threshold vector error-correction model find statistically significant evidence of contraction in the monetary base growth in the short-run in regime 1. In regime 2, the growth in the monetary base does not adjust to accommodate faster government debt growth. These estimates find no evidence of debt monetization or otherwise in either of the regimes in the United States. The Fed, by reducing the monetary base, perhaps focuses more on the inflation target. The findings also suggest a potential scenario where the Fed and the fiscal authority are not conjoined with each other in their operations.

AbstractThis paper empirically investigates the dynamics between budget deficit and government debt in the U.S. using two different measures of the budget deficit: the current budget deficit and cyclically-adjusted budget deficit. A threshold Vector autoregression (VAR) model is estimated to explore the dynamics in different regimes using quarterly data from 1947:Q1 to 2017:Q3. The specification test rejects a linear VAR model against the threshold VAR. When we use the current budget deficit, regime 1 resemble governments prioritize minimizing budget deficit and debt, whereas, regime 2 resemble otherwise. When we use the cyclically adjusted budget deficit, regime 1 resemble economic expansions, whereas, regime 2 resemble recessions. The impulse responses show evidence of asymmetry and counter-cyclicality. The impulse responses also indicate that an increase in the debt dictate the government’s response towards minimizing the budget deficit and tend to prioritize budget deficit less when the economy expands.

PurposeThis paper explores the evidence of a long-run co-movement between aggregate unemployment insurance spending and the labor force participation rate in the USA. The unemployment insurance (UI) program tends to expand during an economic downturn and contract during an expansion. UI may incentivize unemployment and may also facilitate better matching in the labor market. Statistical evidence of the presence of a co-movement will thus shed new light on their dynamics.Design/methodology/approachThis research applies time-series econometric approach using monthly data from 1959:1 to 2020:3 to test threshold cointegration and estimate a threshold vector error-correction (TVEC) model. The estimates from the TVEC model investigating the nature of short-run dynamics.FindingsThe Enders and Siklos (2001) test find evidence of threshold cointegration between the two indicating the presence of long-run co-movement. The estimates from the TVEC model investigating the nature of short-run dynamics find evidence that the growth in aggregate UI spending and the growth in labor force participation rate adjust simultaneously to maintain the long-run co-movement above the threshold in the short run. The author also observes the same short-run dynamics for the growth in aggregate UI spending and the growth in the labor force participation rate for females.Research limitations/implicationsThis model is bi-variate by construction and does not address causality.Practical implicationsThe author argues that the UI program positively impacts the female labor market outcomes, for example, better matching. This finding may explain the upward trend in the labor force participation rate for females in the USA.Social implicationsThe research findings may justify the transfer programs for minority and immigrants.Originality/valueThis is first research that analyzes the UI programs impact on the labor force participation using a macroeconometric approach. To the best of the author's knowledge, this is the first study in this genre.

No abstract

In this research, we explore the dynamics among measures of income inequality in the United States, male and female unemployment rates, and growth in government transfer using time series data. This research adopts a macro-econometric approach using a structural VAR model. Our structural impulse responses find growth in government transfer increases unemployment rates for both males and females. Female income inequality declines with increased government transfer. When the female income ratio rises, we observe the government transfer outlays fall over the forecast horizon. Variance decomposition finds that growth in government transfers is impacted by the male unemployment rate relatively more than the female unemployment rate. This research, therefore, suggests gender-specific government transfers to reduce income inequality. This, in effect, may reduce government transfer outlays over time. JEL code: C32, D63, E24, I38, J16