Optimal reduction of public debt under partial observation of the economic growth

Callegaro G, Ceci C, Ferrari G (2020)
Finance and stochastics 24(4): 1083-1132.

Zeitschriftenaufsatz | Veröffentlicht | Englisch
 
Download
OA 50.12 KB
Autor*in
Callegaro, Giorgia; Ceci, Claudia; Ferrari, GiorgioUniBi
Abstract / Bemerkung
We consider a government that aims at reducing the debt-to-(gross domestic product) (GDP) ratio of a country. The government observes the level of the debt-to-GDP ratio and an indicator of the state of the economy, but does not directly observe the development of the underlying macroeconomic conditions. The government's criterion is to minimise the sum of the total expected costs of holding debt and of debt reduction policies. We model this problem as a singular stochastic control problem under partial observation. The contribution of the paper is twofold. Firstly, we provide a general formulation of the model in which the level of the debt-to-GDP ratio and the value of the macroeconomic indicator evolve as a diffusion and a jump-diffusion, respectively, with coefficients depending on the regimes of the economy. The latter are described through a finite-state continuous-time Markov chain. We reduce the original problem via filtering techniques to an equivalent one with full information (the so-called separated problem), and we provide a general verification result in terms of a related optimal stopping problem under full information. Secondly, we specialise to a case study in which the economy faces only two regimes and the macroeconomic indicator has a suitable diffusive dynamics. In this setting, we provide the optimal debt reduction policy. This is given in terms of the continuous free boundary arising in an auxiliary fully two-dimensional optimal stopping problem.
Stichworte
Singular stochastic control; Partial observation; Optimal stopping; Free; boundary; Debt-to-GDP ratio
Erscheinungsjahr
2020
Zeitschriftentitel
Finance and stochastics
Band
24
Ausgabe
4
Seite(n)
1083-1132
ISSN
0949-2984
eISSN
1432-1122
Finanzierungs-Informationen
Open-Access-Publikationskosten wurden durch die Universität Bielefeld im Rahmen des DEAL-Vertrags gefördert.
Page URI
https://pub.uni-bielefeld.de/record/2946500

Zitieren

Callegaro G, Ceci C, Ferrari G. Optimal reduction of public debt under partial observation of the economic growth. Finance and stochastics. 2020;24(4):1083-1132.
Callegaro, G., Ceci, C., & Ferrari, G. (2020). Optimal reduction of public debt under partial observation of the economic growth. Finance and stochastics, 24(4), 1083-1132. doi:10.1007/s00780-020-00438-z
Callegaro, G., Ceci, C., and Ferrari, G. (2020). Optimal reduction of public debt under partial observation of the economic growth. Finance and stochastics 24, 1083-1132.
Callegaro, G., Ceci, C., & Ferrari, G., 2020. Optimal reduction of public debt under partial observation of the economic growth. Finance and stochastics, 24(4), p 1083-1132.
G. Callegaro, C. Ceci, and G. Ferrari, “Optimal reduction of public debt under partial observation of the economic growth”, Finance and stochastics, vol. 24, 2020, pp. 1083-1132.
Callegaro, G., Ceci, C., Ferrari, G.: Optimal reduction of public debt under partial observation of the economic growth. Finance and stochastics. 24, 1083-1132 (2020).
Callegaro, Giorgia, Ceci, Claudia, and Ferrari, Giorgio. “Optimal reduction of public debt under partial observation of the economic growth”. Finance and stochastics 24.4 (2020): 1083-1132.
Alle Dateien verfügbar unter der/den folgenden Lizenz(en):
Creative Commons Namensnennung 4.0 International Public License (CC-BY 4.0):
Volltext(e)
Access Level
OA Open Access
Zuletzt Hochgeladen
2020-12-03T13:08:33Z
MD5 Prüfsumme
d8ebc3d82c725d81586e699177cb8d9b

Export

Markieren/ Markierung löschen
Markierte Publikationen

Open Data PUB

Web of Science

Dieser Datensatz im Web of Science®

Suchen in

Google Scholar