Playing the Deficit Gamble Easily
Author(s)
Kenichi Tamegawa
ABSTRACT
In this paper, we attempt to obtain the exact probability distribution of the debt-to-GDP ratio in T years, assuming that 1) the primary balance is zero and 2) the interest rate and the GDP growth rate are given as exogenous random variables. With this approach, researchers can play the “Deficit Gamble” without conducting a Monte Carlo simulation. Calculating the distribution of the debt-to-GDP ratio would be useful for policy planning.
In this paper, we attempt to obtain the exact probability distribution of the debt-to-GDP ratio in T years, assuming that 1) the primary balance is zero and 2) the interest rate and the GDP growth rate are given as exogenous random variables. With this approach, researchers can play the “Deficit Gamble” without conducting a Monte Carlo simulation. Calculating the distribution of the debt-to-GDP ratio would be useful for policy planning.
Cite this paper
K. Tamegawa, "Playing the Deficit Gamble Easily," Theoretical Economics Letters, Vol. 2 No. 2, 2012, pp. 209-211. doi: 10.4236/tel.2012.22037.
K. Tamegawa, "Playing the Deficit Gamble Easily," Theoretical Economics Letters, Vol. 2 No. 2, 2012, pp. 209-211. doi: 10.4236/tel.2012.22037.
References
[1] L. D. Ball, D. W. Elmendorf, and N. Mankiw, “The Deficit Gamble,” Journal of Credit, Money, and Banking, Vol. 30, No. 4, 1998, pp. 699-720. doi:10.2307/2601125 [2] K. Oguro, “A Study of Government Deficit in Terms of a Gamble: Under Uncertainty for GDP Growth Rate and Interest Rate,” JCER Journal, No. 60, 2009, pp. 19-35. [3] M. Sakuragawa and K. Hosono, “Fiscal Sustainability of Japan: A Dynamic Stochastic General Equilibrium Approach,” Japanese Economic Review, Vol. 61, No. 4, 2010, pp. 517-537. doi:10.1111/j.1468-5876.2009.00503.x [4] H. Bohn, “The Behaviour of US Public Debt and Deficits,” Quarterly Journal of Economics, Vol. 113, No. 3, 1998, pp. 949-963. doi:10.1162/003355398555793 [5] B. Trehan and C. E. Walsh, “Common Trends, the Government Budget Constraint, and Revenue Smoothing,” Journal of Economic Dynamics and Control, Vol. 12, No. 2-3, 1988, pp. 425-444. doi:10.1016/0165-1889(88)90048-6 [6] C. S. Hakkio and M. Rush, “Is the Budget Deficits ‘Too Large’,” Economic Inquiry, Vol. 29, 1991, pp. 429-445. doi:10.1111/j.1465-7295.1991.tb00837.x [7] F. Hayashi, “Econometrics,” Princeton University Press, Princeton, 2000.
[1] L. D. Ball, D. W. Elmendorf, and N. Mankiw, “The Deficit Gamble,” Journal of Credit, Money, and Banking, Vol. 30, No. 4, 1998, pp. 699-720. doi:10.2307/2601125 [2] K. Oguro, “A Study of Government Deficit in Terms of a Gamble: Under Uncertainty for GDP Growth Rate and Interest Rate,” JCER Journal, No. 60, 2009, pp. 19-35. [3] M. Sakuragawa and K. Hosono, “Fiscal Sustainability of Japan: A Dynamic Stochastic General Equilibrium Approach,” Japanese Economic Review, Vol. 61, No. 4, 2010, pp. 517-537. doi:10.1111/j.1468-5876.2009.00503.x [4] H. Bohn, “The Behaviour of US Public Debt and Deficits,” Quarterly Journal of Economics, Vol. 113, No. 3, 1998, pp. 949-963. doi:10.1162/003355398555793 [5] B. Trehan and C. E. Walsh, “Common Trends, the Government Budget Constraint, and Revenue Smoothing,” Journal of Economic Dynamics and Control, Vol. 12, No. 2-3, 1988, pp. 425-444. doi:10.1016/0165-1889(88)90048-6 [6] C. S. Hakkio and M. Rush, “Is the Budget Deficits ‘Too Large’,” Economic Inquiry, Vol. 29, 1991, pp. 429-445. doi:10.1111/j.1465-7295.1991.tb00837.x [7] F. Hayashi, “Econometrics,” Princeton University Press, Princeton, 2000.