Infinite Debt Rollover in Stochastic Economies /
Kocherlakota, Narayana R.
Infinite Debt Rollover in Stochastic Economies / Narayana R. Kocherlakota. - Cambridge, Mass. National Bureau of Economic Research 2022. - 1 online resource: illustrations (black and white); - NBER working paper series no. w30409 . - Working Paper Series (National Bureau of Economic Research) no. w30409. .
August 2022.
This paper shows that there is more scope for a borrower to engage in a sustainable infinite debt rollover (a "Ponzi scheme") when interest/growth rates are stochastic. In this context, I prove that the relevant "r vs. g" comparison uses the yield r_ to an infinite-maturity zero-coupon bond. I show that r_ is lower than the (risk-neutral) expectation of the short-term yield when it is variable, and that r_ is close to the minimal realization of the short-term yield when it is highly persistent. The paper applies these results to illustrative heterogeneous agent dynamic stochastic general equilibrium models to obtain weak sufficient conditions for the existence of public debt bubbles.
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Mode of access: World Wide Web.
Interest Rates: Determination, Term Structure, and Effects
Monetary Policy
Fiscal Policy • Modern Monetary Theory
Infinite Debt Rollover in Stochastic Economies / Narayana R. Kocherlakota. - Cambridge, Mass. National Bureau of Economic Research 2022. - 1 online resource: illustrations (black and white); - NBER working paper series no. w30409 . - Working Paper Series (National Bureau of Economic Research) no. w30409. .
August 2022.
This paper shows that there is more scope for a borrower to engage in a sustainable infinite debt rollover (a "Ponzi scheme") when interest/growth rates are stochastic. In this context, I prove that the relevant "r vs. g" comparison uses the yield r_ to an infinite-maturity zero-coupon bond. I show that r_ is lower than the (risk-neutral) expectation of the short-term yield when it is variable, and that r_ is close to the minimal realization of the short-term yield when it is highly persistent. The paper applies these results to illustrative heterogeneous agent dynamic stochastic general equilibrium models to obtain weak sufficient conditions for the existence of public debt bubbles.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
Interest Rates: Determination, Term Structure, and Effects
Monetary Policy
Fiscal Policy • Modern Monetary Theory