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|Title:||A NOTE on OPTIMAL DEBT REDUCTION POLICIES||Authors:||La Torre, D.
|Issue Date:||2019||Publisher:||Cambridge University Press||Journal:||Macroeconomic Dynamics||Abstract:||We analyze the optimal debt reduction problem in an uncertainty context. The social planner has a finite horizon and seeks to minimize the social costs associated with debt repayment by taking into account not only the short-run costs of the policy, but also the long-run costs associated with the outstanding level of debt. We characterize the optimal policy and the dynamics of the debt-to-GDP ratio, showing that it will decrease over time if economic policy is effective enough. We characterize how the evolution of the debt-to-GDP ratio depends on the main parameters and we present a simple calibration based on Greek data to illustrate the implications of our analysis in real-world setups. © 2019 University Press.||URI:||http://hdl.handle.net/20.500.12216/288||DOI:||10.1017/S1365100519000014|
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