Bell, Peter N (2012): Government spending in a model where debt effects output gap.
Download (567kB) | Preview
In this paper I present a simple model of government spending where the level of government debt affects the output gap. The structure of the economy is specified such that the output gap has a structural part, which is a function of debt. Based on empirical research, the structural part is assigned a specific functional form. The government faces an optimization problem where they attempt to close the output gap. The optimal change in government debt is found by solving a nonlinear equation. Numerical results show that the optimal change in debt has nonlinear behaviour. The solution to the unconstrained problem is an alternating equilibrium, whereas the solution to the constrained problem is a non linear cycle around the government's upper bound of admissible debt.
|Item Type:||MPRA Paper|
|Original Title:||Government spending in a model where debt effects output gap|
|English Title:||Government spending in a model where debt effects output gap|
|Keywords:||Debt, Macroeconomy, Fiscal, Government Spending, Output Gap, Nonlinear, Numerical Method|
|Subjects:||H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General
E - Macroeconomics and Monetary Economics > E0 - General > E00 - General
|Depositing User:||Users 25858 not found.|
|Date Deposited:||25. Apr 2012 00:26|
|Last Modified:||24. Mar 2015 01:33|
Cecchetti, S.G., M. Mohanty and F. Zampolli, 2011, The real effects of debt, BIS Working Papers No 352.
Eggertsson, G. and P. Krugman, 2011, Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo approach, Working Paper.
Federal Reserve Economic Data (FRED), 2012, Federal Reserve Bank of St. Louis, http://research.stlouisfed.org/fred2/.
Mauldin, J. and J. Tepper, 2011, Endgame: The End of the Debt Supercycle and How It Changes Everything, Wiley.
Reinhart, C.M. and K. Rogoff, 2009, This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.