Next Article in Journal
Overdispersed-Poisson Model in Claims Reserving: Closed Tool for One-Year Volatility in GLM Framework
Next Article in Special Issue
Dealing with Drift Uncertainty: A Bayesian Learning Approach
Previous Article in Journal
Measurement of Systemic Risk in a Common European Union Risk-Based Deposit Insurance System: Formal Necessity or Value-Adding Process?
Article Menu
Issue 4 (December) cover image

Export Article

Open AccessArticle
Risks 2018, 6(4), 138; https://doi.org/10.3390/risks6040138

On the Failure to Reach the Optimal Government Debt Ceiling

1
Department of Mathematical and Statistical Sciences, University of Alberta, Central Academic Building 639, Edmonton, AB T6G 2G1, Canada
2
Department of Economics, Pontificia Universidad Católica del Perú, Av. Universitaria 1801, San Miguel, Lima 32, Peru
*
Author to whom correspondence should be addressed.
Received: 19 September 2018 / Revised: 19 November 2018 / Accepted: 27 November 2018 / Published: 4 December 2018
(This article belongs to the Special Issue Applications of Stochastic Optimal Control to Economics and Finance)
Full-Text   |   PDF [650 KB, uploaded 18 December 2018]   |  

Abstract

We develop a government debt management model to study the optimal debt ceiling when the ability of the government to generate primary surpluses to reduce the debt ratio is limited. We succeed in finding a solution for the optimal debt ceiling. We study the conditions under which a country is not able to reduce its debt ratio to reach its optimal debt ceiling, even in the long run. In addition, this model with bounded intervention is consistent with the fact that, in reality, countries that succeed in reducing their debt ratio do not do so immediately, but over some period of time. To the best of our knowledge, this is the first theoretical model on the debt ceiling that accounts for bounded interventions. View Full-Text
Keywords: debt crisis; government debt management; optimal government debt ceiling; government debt ratio; stochastic control; decision analysis; risk management debt crisis; government debt management; optimal government debt ceiling; government debt ratio; stochastic control; decision analysis; risk management
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
SciFeed

Share & Cite This Article

MDPI and ACS Style

Cadenillas, A.; Huamán-Aguilar, R. On the Failure to Reach the Optimal Government Debt Ceiling. Risks 2018, 6, 138.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Risks EISSN 2227-9091 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top