Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/uma/periwp/wp296.html
   My bibliography  Save this paper

Are No-Ponzi Game and Transversality Conditions Relevant for Public Debt? A Keynesian Appraisal

Author

Listed:
  • Karim Azizi
  • Nicolas Canry
  • Jean-Bernard Chatelain
  • Bruno Tinel
Abstract
This paper investigates the relevance of the No-Ponzi game condition for public debt (i.e. the public debt growth rate has to be lower than the real interest rate) and the transversality condition for the GDP growth rate (i.e. the GDP growth rate has to be lower than the real interest rate). First, it appears in OECD data, that over the last 40 years, those conditions were validated only for 24% of the cases under examination. Second, the No-Ponzi and the transversality conditions were more frequent in the 1980s and the 1990s following changes towards more restrictive monetary policies. Third, in line with the Keynesian view, the data show that cases where the real interest rate is lower than the GDP growth rate may also lead to public debt consolidation (i.e. a decrease in the debt to GDP ratio) in 26% of the cases, compared with only 19% corresponding to the textbook case in which both GDP and public debt growth rates are below the interest rate.

Suggested Citation

  • Karim Azizi & Nicolas Canry & Jean-Bernard Chatelain & Bruno Tinel, 2012. "Are No-Ponzi Game and Transversality Conditions Relevant for Public Debt? A Keynesian Appraisal," Working Papers wp296, Political Economy Research Institute, University of Massachusetts at Amherst.
    • Handle: RePEc:uma:periwp:wp296
    as

    Download full text from publisher

    File URL: https://per.umass.edu/fileadmin/pdf/working_papers/working_papers_251-300/WP296.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Amable, Bruno & Chatelain, Jean-Bernard & Ralf, Kirsten, 2010. "Patents as collateral," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1092-1104, June.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    3. Philip Arestis & Malcolm Sawyer, 2004. "On the Effectiveness of Monetary Policy and of Fiscal Policy," Review of Social Economy, Taylor & Francis Journals, vol. 62(4), pages 441-463.
    4. Caputo,Michael R., 2005. "Foundations of Dynamic Economic Analysis," Cambridge Books, Cambridge University Press, number 9780521842723, September.
    5. Jean-Bernard Chatelain & Kirsten Ralf, 2012. "The Failure Of Financial Macroeconomics And What To Do About It," Manchester School, University of Manchester, vol. 80, pages 21-53, September.
    6. Blanchard Olivier & Weil Philippe, 2001. "Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(2), pages 1-23, November.
    7. Heijdra, Ben J., 2017. "Foundations of Modern Macroeconomics," OUP Catalogue, Oxford University Press, edition 3, number 9780198784135.
    8. Amable, Bruno & Azizi, Karim, 2011. "Varieties of capitalism and varieties of macroeconomic policy. Are some economies more procyclical than others?," MPIfG Discussion Paper 11/6, Max Planck Institute for the Study of Societies.
    9. Muriel Pucci & Bruno Tinel, 2011. "Réductions d'impôts et dette publique en France," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 125-148.
    10. Kamihigashi, Takashi, 2005. "Necessity of the transversality condition for stochastic models with bounded or CRRA utility," Journal of Economic Dynamics and Control, Elsevier, vol. 29(8), pages 1313-1329, August.
    11. HALKIN, Hubert, 1974. "Necessary conditions for optimal control problems with infinite horizons," LIDAM Reprints CORE 193, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Michel, Philippe, 1982. "On the Transversality Condition in Infinite Horizon Optimal Problems," Econometrica, Econometric Society, vol. 50(4), pages 975-985, July.
    13. Philippe Weil & Olivier Blanchard, 2001. "Debt Ponzi games and dynamic efficiency under uncertainty," ULB Institutional Repository 2013/13442, ULB -- Universite Libre de Bruxelles.
    14. repec:hal:wpspec:info:hdl:2441/8607 is not listed on IDEAS
    15. repec:hal:spmain:info:hdl:2441/8607 is not listed on IDEAS
    16. Halkin, Hubert, 1974. "Necessary Conditions for Optimal Control Problems with Infinite Horizons," Econometrica, Econometric Society, vol. 42(2), pages 267-272, March.
    17. Philip Arestis & Malcolm Sawyer, 2004. "On Fiscal Policy and Budget Deficits," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 1(2), pages 61-74.
    18. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jean-Bernard Chatelain & Kirsten Ralf, 2012. "The Failure Of Financial Macroeconomics And What To Do About It," Manchester School, University of Manchester, vol. 80, pages 21-53, September.
    2. Schilirò, Daniele, 2020. "COVID-19 crisis and the public debt issue:The case of Italy," MPRA Paper 103997, University Library of Munich, Germany, revised Nov 2020.
    3. Lechevalier, Sébastien & Debanes, Pauline & Shin, Wonkyu, 2019. "Financialization and industrial policies in Japan and Korea: Evolving institutional complementarities and loss of state capabilities," Structural Change and Economic Dynamics, Elsevier, vol. 48(C), pages 69-85.
    4. Sébastien Lechevalier & Pauline Debanes & Shin Wonkyu, 2016. "Financialization and industrial policies in Japan and Korea: Evolving complementarities and loss of institutional capabilities," Working Papers halshs-01431783, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Azizi, Karim & Canry, Nicolas & Chatelain, Jean-Bernard & Tinel, Bruno, 2013. "Government Solvency, Austerity and Fiscal Consolidation in the OECD: A Keynesian Appraisal of Transversality and No Ponzi Game Conditions," EconStor Preprints 72550, ZBW - Leibniz Information Centre for Economics.
    2. Jean-Bernard Chatelain & Kirsten Ralf, 2012. "The Failure Of Financial Macroeconomics And What To Do About It," Manchester School, University of Manchester, vol. 80, pages 21-53, September.
    3. Gourieroux, C. & Jasiak, J. & Monfort, A., 2020. "Stationary bubble equilibria in rational expectation models," Journal of Econometrics, Elsevier, vol. 218(2), pages 714-735.
    4. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
    5. Julia, Knolle, 2014. "An Empirical Comparison of Interest and Growth Rates," MPRA Paper 59520, University Library of Munich, Germany.
    6. Stéphane Guibaud & Yves Nosbusch & Dimitri Vayanos, 2013. "Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt," The Review of Financial Studies, Society for Financial Studies, vol. 26(8), pages 1914-1961.
    7. Ravi Kashyap, 2016. "Solving the Equity Risk Premium Puzzle and Inching Towards a Theory of Everything," Papers 1604.04872, arXiv.org, revised Sep 2019.
    8. Gordon, Sidartha & Marlats, Chantal & Ménager, Lucie, 2021. "Observation delays in teams and effort cycles," Games and Economic Behavior, Elsevier, vol. 130(C), pages 276-298.
    9. Marc Boissaux & Jang Schiltz, 2010. "An Optimal Control Approach to Portfolio Optimisation with Conditioning Information," LSF Research Working Paper Series 10-09, Luxembourg School of Finance, University of Luxembourg.
    10. Koumparoulis, Dimitrios, 2006. "Ευρωπαϊκή Δημοσιονομική Πολιτική Και Οικονομική Μεγέθυνση: Η Νεοκλασική Οικονομική Θεωρία Για Την Περίπτωση Της Ελλάδας [European Fiscal Policy and Economic Growth: The Neoclassical Economic Theory," MPRA Paper 44310, University Library of Munich, Germany.
    11. Jakob Korbinian Eberl, 2016. "The Collateral Framework of the Eurosystem and Its Fiscal Implications," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 69.
    12. Weber, Thomas A., 2006. "An infinite-horizon maximum principle with bounds on the adjoint variable," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 229-241, February.
    13. Mr. Evan C Tanner, 2013. "Fiscal Sustainability: A 21st Century Guide for the Perplexed," IMF Working Papers 2013/089, International Monetary Fund.
    14. Gersbach, Hans & Rochet, Jean-Charles & von Thadden, Ernst-Ludwig, 2023. "Public Debt and the Balance Sheet of the Private Sector," TSE Working Papers 23-1412, Toulouse School of Economics (TSE).
    15. Sardoni, Claudio, 2021. "The public debt and the Ricardian equivalence: Some critical remarks," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 153-160.
    16. Carl Weizsäcker, 2013. "Der Vorsorge-Albtraum," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 93(1), pages 7-15, January.
    17. Michel, Philippe & Thibault, Emmanuel, 2007. "The failure of Ricardian equivalence under dynastic altruism," Journal of Mathematical Economics, Elsevier, vol. 43(5), pages 606-614, June.
    18. Driskill, Robert, 2006. "Multiple equilibria in dynamic rational expectations models: A critical review," European Economic Review, Elsevier, vol. 50(1), pages 171-210, January.
    19. Bosi, Stefano & Lloyd-Braga, Teresa & Nishimura, Kazuo, 2021. "Externalities of human capital," Mathematical Social Sciences, Elsevier, vol. 112(C), pages 145-158.
    20. Kaniovski, Serguei, 2017. "The Optimal Use of Exhaustible Resources under Nonconstant Returns to Scale," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168079, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Public debt solvency; No-Ponzi Game condition; transversality condition; Keynesian countercyclical policy; monetary policy; economic growth;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H6 - Public Economics - - National Budget, Deficit, and Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uma:periwp:wp296. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Judy Fogg (email available below). General contact details of provider: https://edirc.repec.org/data/permaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.