TITLE:
Playing the Deficit Gamble Easily
AUTHORS:
Kenichi Tamegawa
KEYWORDS:
Deficit Gamble; Government Debt
JOURNAL NAME:
Theoretical Economics Letters,
Vol.2 No.2,
May
24,
2012
ABSTRACT: In this paper, we attempt to obtain the exact probability distribution of the debt-to-GDP ratio in T years, assuming that 1) the primary balance is zero and 2) the interest rate and the GDP growth rate are given as exogenous random variables. With this approach, researchers can play the “Deficit Gamble” without conducting a Monte Carlo simulation. Calculating the distribution of the debt-to-GDP ratio would be useful for policy planning.