Fiscal Policy, Public Debt and the Term Structure of Interest Rates

Abstract

Introduction.- Motivation.- Brief review of the literature.- General discussion of the basic model assumptions.- Structure of the thesis.- The basic deterministic macroeconomic model.- Introduction.- Basic structure of the economy and the financial market.- Decision problem of the representative household.- Fiscal policy.- General equilibrium.- Capital accumulation, viability and economic growth.- Public debt and deficit dynamics.- Short summary.- The basic stochastic macroeconomic model and the short-term interest rate dynamics.- Introduction.- Basic structure of the economy and the financial market.- Decision problem of the representative household.- Fiscal policy.- Stochastic general equilibrium.- Stochastic dynamics and boundary behavior of the short-term interest rate.- Transitional and asymptotic analysis of the short-term interest rate.- Short summary.- Term structure of interest rates and fiscal policy.- Introduction.- Derivation and discussion of the bond price valuation equation.- Term structure and fiscal policy analysis.- A numerical example.- Short summary.- Economic growth and fiscal policy.- Introduction.- Local and global behavior of the capital output ratio and implications for economic growth.- Short and long run effects of fiscal policy and interest rates on capital output and growth.- Short summary.- Public debt dynamics.- Introduction.- Local and global behavior of the debt ratio.- Short and long run effects of fiscal policy and interest rates on the debt ratio.- Short summary.- Summary, conclusions and outlook on future research.- Summary of the main results.- Assessment of the model results.- Outlook on future research.- General appendix 1: Brownian motion and stochastic integration.- Brownian motion.- Stochastic integration: The Ito integral.- General appendix 2: Stochastic differential equations and diffusion processes.- Stochasticdifferential equations.- Diffusion processes.- General appendix 3: Stochastic optimization and dynamic programming.