IDEAS home Printed from https://ideas.repec.org/p/bie/wpaper/730.html
   My bibliography  Save this paper

A Stochastic Non-Zero-Sum Game of Controlling the Debt-to-GDP Ratio

Author

Listed:
  • Dammann, Felix

    (Center for Mathematical Economics, Bielefeld University)

  • Rodosthenous, Neofytos

    (Center for Mathematical Economics, Bielefeld University)

  • Villeneuve, Stéphane

    (Center for Mathematical Economics, Bielefeld University)

Abstract

We introduce a non-zero-sum game between a government and a legislative body to study the optimal level of debt. Each player, with different time preferences, can intervene on the stochastic dynamics of the debt-to-GDP ratio via singular stochastic controls, in view of minimiz- ing non-continuously differentiable running costs. We completely characterise Nash equilibria in the class of Skorokhod-reflection-type policies. We highlight the importance of different time preferences resulting in qualitatively different type of equilibria. In particular, we show that, while it is always optimal for the government to devise an appropriate debt issuance policy, the legislator should opti- mally impose a debt ceiling only under relatively low discount rates and a laissez-faire policy can be optimal for high values of the legislator’s discount rate.

Suggested Citation

  • Dammann, Felix & Rodosthenous, Neofytos & Villeneuve, Stéphane, 2025. "A Stochastic Non-Zero-Sum Game of Controlling the Debt-to-GDP Ratio," Center for Mathematical Economics Working Papers 730, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:730
    as

    Download full text from publisher

    File URL: https://pub.uni-bielefeld.de/download/3006152/3006153
    File Function: First Version, 2024
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    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:bie:wpaper:730. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Bettina Weingarten (email available below). General contact details of provider: https://edirc.repec.org/data/imbiede.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.