IDEAS home Printed from https://ideas.repec.org/p/uto/dipeco/202009.html
   My bibliography  Save this paper

Public Debt Dynamics under Ambiguity by Means of Iterated Function Systems on Density Functions

Author

Listed:

Abstract

We analyze a purely dynamic model of public debt stabilization under ambiguity. We assume that the debt to GDP ratio is described by a random variable, and thus it can be characterized by investigating the evolution of its density function through iteration function systems on mappings. Ambiguity is associated with parameter uncertainty which requires policymakers to respond to such an additional layer of uncertainty according to their ambiguity attitude. We describe ambiguity attitude through a simple heuristic rule in which policymakers adjust the available vague information (captured by the empirical distribution of the debt ratio) with a measure of their ignorance (captured by the uniform distribution). We show that such a model generates fractal-type objects that can be characterized as fixed-point solutions of iterated function systems on mappings. Ambiguity is a source of unpredictability in the long run outcome since it introduces some singularity features in the steady state distribution of the debt ratio. However, the presence of some ambiguity aversion removes such unpredictability by smoothing our the singularities in the steady state distribution.

Suggested Citation

  • La Torre, Davide & Marsiglio, Simone & Mendivil, Franklin & Privileggi, Fabio, 2020. "Public Debt Dynamics under Ambiguity by Means of Iterated Function Systems on Density Functions," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202009, University of Turin.
    • Handle: RePEc:uto:dipeco:202009
    as

    Download full text from publisher

    File URL: https://www.est.unito.it/do/home.pl/Download?doc=/allegati/wp2020dip/wp_09_2020.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Johanna Etner & Meglena Jeleva & Jean‐Marc Tallon, 2012. "Decision Theory Under Ambiguity," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 234-270, April.
    2. La Torre, Davide & Marsiglio, Simone & Mendivil, Franklin & Privileggi, Fabio, 2015. "Self-similar measures in multi-sector endogenous growth models," Chaos, Solitons & Fractals, Elsevier, vol. 79(C), pages 40-56.
    3. Guido Cozzi & Paolo Giordani, 2011. "Ambiguity attitude, R&D investments and economic growth," Journal of Evolutionary Economics, Springer, vol. 21(2), pages 303-319, May.
    4. William A. Brock & Leonard J. Mirman, 2001. "Optimal Economic Growth And Uncertainty: The Discounted Case," Chapters, in: W. D. Dechert (ed.), Growth Theory, Nonlinear Dynamics and Economic Modelling, chapter 1, pages 3-37, Edward Elgar Publishing.
    5. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    6. Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October.
    7. Camerer, Colin & Weber, Martin, 1992. "Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-370, October.
    8. La Torre, Davide & Marsiglio, Simone & Privileggi, Fabio, 2018. "Fractal Attractors in Economic Growth Models with Random Pollution Externalities," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201801, University of Turin.
    9. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
    10. Colander,David (ed.), 2006. "Post Walrasian Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521865487.
    11. Born, Benjamin & Pfeifer, Johannes, 2014. "Policy risk and the business cycle," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 68-85.
    12. Johanna Etner & Meglena Jeleva & Jean-Marc Tallon, 2009. "Decision theory under uncertainty," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00429573, HAL.
    13. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    14. Lars J. Olson & Santanu Roy, 2006. "Theory of Stochastic Optimal Economic Growth," Springer Books, in: Rose-Anne Dana & Cuong Le Van & Tapan Mitra & Kazuo Nishimura (ed.), Handbook on Optimal Growth 1, chapter 11, pages 297-335, Springer.
    15. Colander,David (ed.), 2006. "Post Walrasian Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521684200.
    Full references (including those not matched with items on IDEAS)

    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. La Torre, Davide & Marsiglio, Simone & Mendivil, Franklin & Privileggi, Fabio, 2021. "Generalized Fractal Transforms with Condensation: a Macroeconomic-Epidemiological Application," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202107, University of Turin.
    2. Carvalho, M., 2012. "Static vs Dynamic Auctions with Ambiguity Averse Bidders," Other publications TiSEM 1f078e67-88ec-46e3-ae18-1, Tilburg University, School of Economics and Management.
    3. Aurélien Baillon & Zhenxing Huang & Asli Selim & Peter P. Wakker, 2018. "Measuring Ambiguity Attitudes for All (Natural) Events," Econometrica, Econometric Society, vol. 86(5), pages 1839-1858, September.
    4. Carvalho, M., 2012. "Static vs Dynamic Auctions with Ambiguity Averse Bidders," Discussion Paper 2012-022, Tilburg University, Center for Economic Research.
    5. Andrew J. Keith & Darryl K. Ahner, 2021. "A survey of decision making and optimization under uncertainty," Annals of Operations Research, Springer, vol. 300(2), pages 319-353, May.
    6. John D. Hey & Noemi Pace, 2018. "The explanatory and predictive power of non two-stage-probability theories of decision making under ambiguity," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 6, pages 139-167, World Scientific Publishing Co. Pte. Ltd..
    7. Robin Cubitt & Gijs Kuilen & Sujoy Mukerji, 2018. "The strength of sensitivity to ambiguity," Theory and Decision, Springer, vol. 85(3), pages 275-302, October.
    8. Jordi Grau-Moya & Pedro A Ortega & Daniel A Braun, 2016. "Decision-Making under Ambiguity Is Modulated by Visual Framing, but Not by Motor vs. Non-Motor Context. Experiments and an Information-Theoretic Ambiguity Model," PLOS ONE, Public Library of Science, vol. 11(4), pages 1-21, April.
    9. Burghart, Daniel R. & Epper, Thomas & Fehr, Ernst, 2015. "The Ambiguity Triangle: Uncovering Fundamental Patterns of Behavior Under Uncertainty," IZA Discussion Papers 9150, Institute of Labor Economics (IZA).
    10. Marco Rojas & Damián Vergara, 2021. "Ambiguity and long-run cooperation in strategic games," Oxford Economic Papers, Oxford University Press, vol. 73(3), pages 1077-1098.
    11. Christoph Bühren & Fabian Meier & Marco Pleßner, 2023. "Ambiguity aversion: bibliometric analysis and literature review of the last 60 years," Management Review Quarterly, Springer, vol. 73(2), pages 495-525, June.
    12. Füllbrunn, Sascha & Rau, Holger A. & Weitzel, Utz, 2014. "Does ambiguity aversion survive in experimental asset markets?," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 810-826.
    13. Masahide Watanabe & Toshio Fujimi, 2015. "Evaluating Change in Objective Ambiguous Mortality Probability: Valuing Reduction in Ambiguity Size and Risk Level," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(1), pages 1-15, January.
    14. Carvalho, M., 2011. "Essays in behavioral microeconomic theory," Other publications TiSEM 97fbb10e-5f12-420b-b8c4-e, Tilburg University, School of Economics and Management.
    15. Adam Dominiak & Jean-Philippe Lefort, 2021. "Ambiguity and Probabilistic Information," Management Science, INFORMS, vol. 67(7), pages 4310-4326, July.
    16. Federica Ceron & Vassili Vergopoulos, 2020. "Recursive objective and subjective multiple priors," Post-Print halshs-02900497, HAL.
    17. Torre, Davide La & Marsiglio, Simone & Mendivil, Franklin & Privileggi, Fabio, 2019. "A stochastic economic growth model with health capital and state-dependent probabilities," Chaos, Solitons & Fractals, Elsevier, vol. 129(C), pages 81-93.
    18. Federica Ceron & Vassili Vergopoulos, 2020. "Recursive objective and subjective multiple priors," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-02900497, HAL.
    19. Federica Ceron & Vassili Vergopoulos, 2020. "Recursive objective and subjective multiple priors," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-02563318, HAL.
    20. Simon Quemin, 2016. "Intertemporal abatement decisions under ambiguity aversion in a cap and trade," Working Papers 1604, Chaire Economie du climat.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:uto:dipeco:202009. 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: Piero Cavaleri or Marina Grazioli (email available below). General contact details of provider: https://edirc.repec.org/data/detorit.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.