Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty

Olivier Blanchard; Philippe Weil

doi:10.2202/1534-6013.1031

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Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty

Olivier Blanchard and Philippe Weil

Published/Copyright: November 27, 2001

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From the journal The B.E. Journal of Macroeconomics Volume 1 Issue 2

In a dynamically efficient economy, can a government roll its debt forever and avoid the need to raise taxes? In a series of examples of economies with zero growth, this paper shows that such Ponzi games may be infeasible even when the average rate of return on bonds is negative, and may be feasible even when the average rate of return on bonds is positive. The paper then reveals the structure which underlies these examples.

Keywords: dynamic efficiency; riskless rate; ponzi games

Published Online: 2001-11-27

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Articles in the same Issue

https://doi.org/10.2202/1534-6013.1031

Keywords for this article

dynamic efficiency; riskless rate; ponzi games