working Paper
Controlling public debt without forgetting Inflation
published
Giorgio
Ferrari
author 32701753
10053
department
Consider the problem of a government that wants to control its debt-to-GDP
(gross domestic product) ratio, while taking into consideration the evolution of the inflation
rate of the country. The uncontrolled inflation rate follows an Ornstein-Uhlenbeck dynamics
and affects the growth rate of the debt ratio. The level of the latter can be reduced by the
government through fiscal interventions. The government aims at choosing a debt reduction
policy which minimises the total expected cost of having debt, plus the total expected cost of
interventions on debt ratio. We model such problem as a two-dimensional singular stochastic
control problem over an infinite time-horizon. We show that it is optimal for the government
to adopt a policy that keeps the debt-to-GDP ratio under an inflation-dependent ceiling. This
curve is the free-boundary of an associated fully two-dimensional optimal stopping problem, and
it is shown to be the unique solution of a nonlinear integral equation.
https://pub.uni-bielefeld.de/download/2904750/2904751/IMW_working_paper_564.pdf
application/x-downloadno
Center for Mathematical Economics2016
eng
debt-to-GDP ratioinflation ratedebt ceilingsingular stochastic controloptimal stoppingfree-boundarynonlinear integral equation
0931-6558urn:nbn:de:0070-pub-29047501
56433
G. Ferrari, <em>Controlling public debt without forgetting Inflation</em>, Center For Mathematical Economics, Bielefeld, <strong>2016</strong>.
Ferrari, G. (2016). <em>Controlling public debt without forgetting Inflation</em> (Center for Mathematical Economics Working Papers, 564). Bielefeld: Center for Mathematical Economics.
G. Ferrari, Controlling public debt without forgetting Inflation, Center for Mathematical Economics Working Papers (Center for Mathematical Economics, Bielefeld, 2016).
Ferrari, G., 2016. <em>Controlling public debt without forgetting Inflation</em>, Center for Mathematical Economics Working Papers, no.564, Bielefeld: Center for Mathematical Economics.
Ferrari, G. (2016): Controlling public debt without forgetting Inflation. Bielefeld: Center for Mathematical Economics.
Ferrari, G. (2016). Controlling public debt without forgetting Inflation. <em>Center for Mathematical Economics Working Papers</em>, 564, Bielefeld: Center for Mathematical Economics.
Ferrari, G.: Controlling public debt without forgetting Inflation. Center for Mathematical Economics Working Papers, 564. Center for Mathematical Economics, Bielefeld (2016).
Ferrari G (2016) <br /><em>Controlling public debt without forgetting Inflation</em>. Center for Mathematical Economics Working Papers; 564.<br />Bielefeld: Center for Mathematical Economics.
Ferrari G. <em>Controlling public debt without forgetting Inflation</em>. Center for Mathematical Economics Working Papers. Vol 564. Bielefeld: Center for Mathematical Economics; 2016.
<div style="text-indent:-25px; padding-left:25px;padding-bottom:0px;">Ferrari, G. (2016). <em>Controlling public debt without forgetting Inflation</em> (Center for Mathematical Economics Working Papers, 564). Bielefeld: Center for Mathematical Economics.</div>
<div style="text-indent:-25px; padding-left:25px;padding-bottom:0px;">Ferrari, Giorgio. 2016. <em>Controlling public debt without forgetting Inflation</em>. Vol. 564. Center for Mathematical Economics Working Papers. Bielefeld: Center for Mathematical Economics.</div>
G. Ferrari, <em>Controlling public debt without forgetting Inflation</em>, Center for Mathematical Economics Working Papers, vol. 564, Bielefeld: Center for Mathematical Economics, 2016.
Ferrari G (2016) Center for Mathematical Economics Working Papers; 564.<br />Bielefeld: Center for Mathematical Economics.
Ferrari, Giorgio. <em>Controlling public debt without forgetting Inflation</em>. Bielefeld: Center for Mathematical Economics, 2016. Center for Mathematical Economics Working Papers. 564.
<div style="text-indent:-25px; padding-left:25px;padding-bottom:0px;">Ferrari, G. (2016). <em>Controlling public debt without forgetting Inflation</em> (Center for Mathematical Economics Working Papers). Bielefeld: Center for Mathematical Economics.</div>
29047502016-07-21T08:17:07Z2018-07-24T13:00:39Z