model.mod (1.3 KB)
I built a simple model containing government debt and found that the government’s current debt repayment of Rt-1Bt- 1 does not meet the BK condition, and the model can only run if the debt repaid is set to RtBt- 1 (my mod file has been uploaded).
In addition, when I ran the model according to Rt*Bt-1, I found that the pulse diagram about R was very strange. I would like to know the cause of the above two problems. Thanks！
Which mechanism in your model stabilizes government debt?
Thanks for your answer. In my model, the government collects taxes and issues debt to pay for each period of government spending and repay the current debt. Among them. The tax is a fixed proportional tax, so the size of each issue depends on the total government expenditure minus tax in the current period.
The mechanism is described as : Gt+Rt-1Bt-1=Bt+Tt, where Tt=tau(WtLt+rtKt)
I’m not sure if this is the mechanism you mentioned to stabilize government debt. if not, could you tell me more about the exact debt stabilization mechanism?
I don’t see how that mechanism stabilizes debt for all possible parameter values. It can easily be that your tax collection is always insufficient or too large to just cover debt.
Thanks for your inspiration. This is my first attempt to introduce government debt into the macro model, and there are some mechanisms I haven’t known yet. It confused me that in order to avoid that the tax is always insufficient or too large to pay off the government debt, what kind of mechanism do mainstream scholars usually use?
Usually, there is some debt-feedback in the rules.
Thanks a lot for your excellent step-by-step explenation, I finally have a better understanding of it.