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

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  • Olivier Jean Blanchard
  • Philippe Weil

Abstract

Can governments roll their debt over forever in dynamically efficient economies, and thus avoid the need to raise taxes? While the answer is a clear no under certainty, it depends, under uncertainty, on whether public debt provides intergenerational insurance. When it does not, rollover is not possible, even if the rate of return on one-period bonds is below the growth rate. When it does, debt rollover may be possible, even if the return on one-period bonds is above the growth rate.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3992.

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Date of creation: Feb 1992
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Publication status: published as Advances in Macroeconomics (2001), vol. 1, issue 2, article 3, http://www.bepress.com/bejm/advances/vol1/iss2/art3.
Handle: RePEc:nbr:nberwo:3992

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  1. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262022834, December.
  2. Koda, Keiichi, 1984. "A note on the existence of monetary equilibria in overlapping generations models with storage," Journal of Economic Theory, Elsevier, Elsevier, vol. 34(2), pages 388-395, December.
  3. Kocherlakota, N.R., 1990. "Bubbles and Constraints on Debt Accumulation," Working Papers, University of Iowa, Department of Economics 90-29, University of Iowa, Department of Economics.
  4. Wang Yong, 1993. "Stationary Equilibria in an Overlapping Generations Economy with Stochastic Production," Journal of Economic Theory, Elsevier, Elsevier, vol. 61(2), pages 423-435, December.
  5. 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, Elsevier, vol. 54(1), pages 69-83, June.
  6. Saint-Paul, G., 1991. "Fiscal Policy In An Endogenous Growth Model," DELTA Working Papers, DELTA (Ecole normale supérieure) 91-04, DELTA (Ecole normale supérieure).
  7. Piero Gottardi & Subir Chattopadhyay, 1999. "- Stochastic Olg Models, Market Structure And Optimality," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 1999-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  8. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1986. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc.
  9. Gottardi, P., 1990. "On Stationary Monetary Equilibria In Overlapping Generations Models With Incomplete Markets," Papers, Cambridge - Risk, Information & Quantity Signals 155, Cambridge - Risk, Information & Quantity Signals.
  10. Bertocchi, Graziella, 1991. "Bubbles and inefficiencies," Economics Letters, Elsevier, Elsevier, vol. 35(2), pages 117-122, February.
  11. Gottardi, Piero, 1996. "Stationary Monetary Equilibria in Overlapping Generations Models with Incomplete Markets," Journal of Economic Theory, Elsevier, Elsevier, vol. 71(1), pages 75-89, October.
  12. Bohn, H., 1990. "The Sutainability Of Budget Deficits In A Stochastic Economy," Weiss Center Working Papers, Wharton School - Weiss Center for International Financial Research 6-90, Wharton School - Weiss Center for International Financial Research.
  13. Peled, Dan, 1982. "Informational diversity over time and the optimality of monetary equilibria," Journal of Economic Theory, Elsevier, Elsevier, vol. 28(2), pages 255-274, December.
  14. Scheinkman, Jose A & Weiss, Laurence, 1986. "Borrowing Constraints and Aggregate Economic Activity," Econometrica, Econometric Society, Econometric Society, vol. 54(1), pages 23-45, January.
  15. Weil, Philippe, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(1), pages 29-42, February.
  16. Weil, Philippe, 1987. "Confidence and the Real Value of Money in an Overlapping Generations Economy," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(1), pages 1-22, February.
  17. Zilcha, Itzhak, 1991. "Characterizing efficiency in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, Elsevier, vol. 55(1), pages 1-16, October.
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