de la Croix, David
[UCL]
Michel, Phippe
We analyze the effect of a constant debt policy on capital accumulation and provide an in--depth treatment of the dynamics in the economy of Diamond. We derive the conditions for avoiding a debt crisis in both the short-run and the long-run and provide geometrical tools to analyze the issue of sustainability. There is always a level of debt ensuring that any level of capital between 0 and an upper limit, and in particular the Golden rule equilibrium, exists as a steady-state equilibrium, yet it is not necessarily stable. We also discuss poverty trap issues.
Bibliographic reference |
de la Croix, David ; Michel, Phippe. National Debt Sustainability and the Dynamics in the Economy of Diamond.. ECON Working Papers ; 1999/15 (1999) |
Permanent URL |
http://hdl.handle.net/2078.1/5526 |