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Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty

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Author Info
Olivier Blanchard (MIT and NBER)
Philippe Weil (Université Libre de Bruxelles (ECARES), CEPR and NBER)

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Abstract

In a dynamically efficient economy, can a government roll its debt forever and avoid the need to raise taxes? In a series of examples of economies with zero growth, this paper shows that such Ponzi games may be infeasible even when the average rate of return on bonds is negative, and may be feasible even when the average rate of return on bonds is positive. The paper then reveals the structure which underlies these examples.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Advances in Macroeconomics.

Volume (Year): 1 (2001)
Issue (Month): advances/1/2 ()
Pages: 1031-1031
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Handle: RePEc:bep:macadv:v:1:y:2001:i:advances/1/2:p:1031-1031

Note: oai:bepress:bejm-1031
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Keywords: dynamic efficiency riskless rate ponzi games

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Koda, Keiichi, 1984. "A note on the existence of monetary equilibria in overlapping generations models with storage," Journal of Economic Theory, Elsevier, vol. 34(2), pages 388-395, December. [Downloadable!] (restricted)
  2. Chattopadhyay, S. & Gottardi, P., 1999. "Stochastic OLG Models, Market Structure and Optimality," Papers 99-15, Valencia - Instituto de Investigaciones Economicas.
    Other versions:
  3. Kocherlakota, N.R., 1990. "Bubbles and Constraints on Debt Accumulation," Working Papers 90-29, University of Iowa, Department of Economics.
  4. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Manuelli, Rodolfo, 1990. "Existence and optimality of currency equilibrium in stochastic overlapping generations models: The pure endowment case," Journal of Economic Theory, Elsevier, vol. 51(2), pages 268-294, August. [Downloadable!] (restricted)
  6. Bertocchi, Graziella, 1991. "Bubbles and inefficiencies," Economics Letters, Elsevier, vol. 35(2), pages 117-122, February. [Downloadable!] (restricted)
  7. Rao Aiyagari, S. & Peled, Dan, 1991. "Dominant root characterization of Pareto optimality and the existence of optimal equilibria in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, vol. 54(1), pages 69-83, June. [Downloadable!] (restricted)
  8. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-71, February. [Downloadable!] (restricted)
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  9. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2000. "Dynamic Efficiency and Pareto Optimality in a Stochastic OLG Model with Production and Social Security," IZA Discussion Papers 209, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Zilcha, Itzhak, 1991. "Characterizing efficiency in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, vol. 55(1), pages 1-16, October. [Downloadable!] (restricted)
  11. Woodford, Michael, 1986. "Expectations, Finance and Aggregate Instability," Working Papers 86-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  12. Saint-Paul, Gilles, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1243-59, November. [Downloadable!] (restricted)
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  13. Weil, Philippe, 1987. "Confidence and the Real Value of Money in an Overlapping Generations Economy," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 1-22, February. [Downloadable!] (restricted)
  14. Peled, Dan, 1982. "Informational diversity over time and the optimality of monetary equilibria," Journal of Economic Theory, Elsevier, vol. 28(2), pages 255-274, December. [Downloadable!] (restricted)
  15. Gottardi, Piero, 1996. "Stationary Monetary Equilibria in Overlapping Generations Models with Incomplete Markets," Journal of Economic Theory, Elsevier, vol. 71(1), pages 75-89, October. [Downloadable!] (restricted)
  16. Scheinkman, Jose A & Weiss, Laurence, 1986. "Borrowing Constraints and Aggregate Economic Activity," Econometrica, Econometric Society, vol. 54(1), pages 23-45, January. [Downloadable!] (restricted)
  17. Gottardi, P., 1990. "On Stationary Monetary Equilibria In Overlapping Generations Models With Incomplete Markets," Papers 155, Cambridge - Risk, Information & Quantity Signals.
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  18. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April. [Downloadable!] (restricted)
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  1. Bovenberg, A Lans & Uhlig, Harald, 2006. "Pension Systems and the Allocation of Macroeconomic Risk," CEPR Discussion Papers 5949, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Hassler, John & Lindbeck, Assar, 1997. "Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems," Working Paper Series 493, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  3. Egil Matsen & Øystein Thøgersen, 2000. "Designing Social Security – A Portfolio Choice Approach," Working Paper Series 1102, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
    Other versions:
  4. Luca Sala, . "The Fiscal Theory of the Price Level: Identifying Restrictions and Empirical Evidence," Working Papers 257, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  5. Carlo Ambrogio Favero & Francesco Giavazzi, . "Why are Brazil´s Interest Rates so High?," Working Papers 224, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  6. Laurence Ball & Douglas W. Elmendorf & N. Gregory Mankiw, 1995. "The Deficit Gamble," NBER Working Papers 5015, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2001. "Government Debt as Insurance against Macroeconomic Risk," IZA Discussion Papers 412, Institute for the Study of Labor (IZA). [Downloadable!]
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