Debt and deficit fluctuations in a time-consistent setup

Grechyna, Daryna (2016) Debt and deficit fluctuations in a time-consistent setup. Macroeconomic Dynamics, 20 (7). pp. 1771-1794. ISSN 1365-1005

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Abstract

This paper compares the stochastic behavior of fiscal variables under optimal fiscal policy for the cases of full commitment by the government (Ramsey problem) and no commitment by the government (focusing on differentiable Markov perfect equilibrium). It shows that the cyclical properties of fiscal variables are similar for both commitment assumptions.
These conclusions are robust to two different specifications of the structure of public bonds (risk-free and state-contingent), and to different sets of the parameters. The cyclical properties of fiscal variables, regardless of commitment assumptions, can be determined by the parameters of the utility function.

Item Type: Article
Research Areas: A. > Business School > Economics
Item ID: 14526
Notes on copyright: This article has been published in a revised form in Macroeconomic Dynamics, http://doi.org/10.1017/S1365100515000073. This version is free to view and download for private research and study only. Not for re-distribution, re-sale or use in derivative works. © Cambridge University Press 2015
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Depositing User: Daryna Grechyna
Date Deposited: 07 Apr 2015 13:21
Last Modified: 25 Jul 2017 10:04
URI: http://eprints.mdx.ac.uk/id/eprint/14526

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