COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Post Office Box 208281
New Haven, CT 06520-8281

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.

JEL Classification: 023, 321

Keywords: Monetary-fiscal mix, public deficits, public debt

See CFP 645