- Vol 10, No 2 (2008)
Testing of the Ricardian Equivalence proposition: An Empirical Examination for Malaysia (1962-2006)
This paper investigates the effects of debts and budgetary deficit on real variables using structural Vector Error Correction Model (VECM) method with long-run restrictions. We compare our estimates of the impulse responses with those based on levels Vector Auto-Regressive (VAR) with standard recursive order restrictions. The test is conducted on the Malaysian data covering the period of 1962-2006. The empirical results do not support the existence of “Ricardian Equivalence” hypothesis. The effects of budgetary deficit and government spending have a significant influence on private consumption and private investment.
debts; Ricardian equivalence; VAR; VECM
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