The dynamics of public debt in Serbia : a nonlinear analysis

We analyse the dynamics of public debt in Serbia between 2004Q3 and 2014Q3. Our results are as follows: i) traditional unit root tests do not reject the unit root hypothesis for public debt; ii) unit root tests robust to sample size and high AR (1) coefficient provide mixed evidence with respect to unit root testing; iii) unit root tests with a breakpoint unequivocally reject the unit root hypothesis; iv) structural break in public debt dynamics ocurred in 2008Q2-2008Q4 due to the arrival of the Great Recession to Serbia; v) the estimated SETAR model shows how public debt persistence tends to be higher above the 45% debt/GDP fiscal rule limit.