Debt, deficits, and finite horizons

Many issues in macroeconomics, such as the level of the steady-state interest rate or the dynamic effects of government deficits, depend crucially on the horizon of agents. This paper develops a simple analytical model in which such issues can be examined and in which the horizon of agents is a para...

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Bibliographic Details
Main Author: Blanchard, Olivier Jean
Format: Book
Published: Chicago, Ill. University of Chicago Press April 1985
Series:Journal of Political Economy n. 2
Subjects:
Description
Summary:Many issues in macroeconomics, such as the level of the steady-state interest rate or the dynamic effects of government deficits, depend crucially on the horizon of agents. This paper develops a simple analytical model in which such issues can be examined and in which the horizon of agents is a parameter that can be chosen arbitrarily. The first part characterizes the dynamics and steady state of the economy in the absence of a government, focusing on the effects of the horizon index on the economy. The paper clarifies the separate roles of finite horizons and declining labor income through life in the determination of steady-state interest rates. The second part studies the effects and the role of fiscal policy. It clarifies the respective roles of government spending, deficits, and debt in the determination of interest rates.
Physical Description:pp. 223-247 il.
Bibliography:Incluye bibliografía
ISSN:00223808