Growth and instability in a small open economy with debt

Leonor Modesto, Carine Nourry, Thomas Seegmuller () and Alain Venditti
Additional contact information
Thomas Seegmuller: Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, https://www.amse-aixmarseille.fr/en/members/seegmuller

No 2012, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: The relationship between public debt, growth and volatility is investigated in a Barro-type (1990) endogenous growth model, with three main features: we consider a small open economy, international borrowing is constrained and households have taste for domestic public debt. Therefore, capital, public debt and the international asset are not perfect substitutes and the economy is characterized by an investment multiplier. Whatever the level of the debt-output ratio, the existing BGP features expectation-driven fluctuations. If the debt-output ratio is low enough, there is also a second BGP with a lower growth rate. Hence, lower debt does not stabilize the economy with credit market imperfections. However, a high enough taste for domestic public debt may rule out the BGP with lower growth. This means that if the share of public debt hold by domestic households is high enough, global indeterminacy does not occur.

Keywords: small open economy; public debt; credit constraint; indeterminacy (search for similar items in EconPapers)
JEL-codes: E32 F43 H63 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2020-04
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.amse-aixmarseille.fr/sites/default/fil ... /wp_2020_-_nr_12.pdf (application/pdf)

Related works:
Journal Article: Growth and instability in a small open economy with debt (2021)
Working Paper: Growth and instability in a small open economy with debt (2021)
Working Paper: Growth and instability in a small open economy with debt (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:2012

Access Statistics for this paper

More papers in AMSE Working Papers from Aix-Marseille School of Economics, France AMU-AMSE - 5-9 Boulevard Maurice Bourdet, CS 50498 - 13205 Marseille Cedex 1. Contact information at EDIRC.
Bibliographic data for series maintained by Gregory Cornu ().