COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 780 "The Monetary-Fiscal Mix: Long-Run Implications" James Tobin January 1986 The long-run dynamics of public deficits and debt are modeled, assuming that public
debt competes with capital for limited private savings. The interest costs of the debt are
endogenously determined inthis market, and the deficit in other budget transactions is a
constant fraction of Gross National Product. Simulations with parameter values suggested
by recent United States experience show the likelihood of unstable paths, along which debt
grows faster than GNP indefinitely. |
