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

  • Blanchard Olivier


    (MIT and NBER)

  • Weil Philippe


    (Université Libre de Bruxelles (ECARES), CEPR and NBER)

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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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 1 (2001)
Issue (Month): 2 (November)
Pages: 1-23

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Handle: RePEc:bpj:bejmac:v:advances.1:y:2001:i:2:n:3
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  1. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
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  14. 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.
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