We analyze the optimal debt reduction problem in an uncertainty context. The social planner has a finite horizon and seeks to minimize the social costs associated with debt repayment by taking into account not only the short-run costs of the policy, but also the long-run costs associated with the outstanding level of debt. We characterize the optimal policy and the dynamics of the debt-to-GDP ratio, showing that it will decrease over time if economic policy is effective enough. We characterize how the evolution of the debt-to-GDP ratio depends on the main parameters and we present a simple calibration based on Greek data to illustrate the implications of our analysis in real-world setups.
A note on optimal debt reduction policies / D. la Torre, S. Marsiglio. - In: MACROECONOMIC DYNAMICS. - ISSN 1365-1005. - (2019 Feb), pp. 1-11. [Epub ahead of print]
Titolo: | A note on optimal debt reduction policies |
Autori: | |
Parole Chiave: | Debt Reduction; Optimal Policy; Uncertainty |
Settore Scientifico Disciplinare: | Settore SECS-P/01 - Economia Politica Settore SECS-S/06 - Metodi mat. dell'economia e Scienze Attuariali e Finanziarie |
Data di pubblicazione: | feb-2019 |
Rivista: | |
Tipologia: | Article (author) |
Data ahead of print / Data di stampa: | feb-2019 |
Digital Object Identifier (DOI): | http://dx.doi.org/10.1017/S1365100519000014 |
Appare nelle tipologie: | 01 - Articolo su periodico |