DMCA
Public debt and aggregate risk ⋆
BibTeX
@MISC{A_publicdebt,
author = {Audrey Desbonnet A and Sumudu Kankanamge B and We Thank Yann Algan and Fabrice Collard and Wouter J. Den Haan},
title = {Public debt and aggregate risk ⋆},
year = {}
}
Share
 |
 |
 |
 |
||
OpenURL
Abstract
This paper assesses the long-run optimal level of public debt in a non Ricardian framework with aggregate fluctuations. Households are subject to aggregate and idiosyncratic risk, face borrowing constraints and the incompleteness of markets prevents them from perfectly insuring against risk. We find that aggregate fluctu-ations modify the cost and the motive for precautionary saving. Higher levels of public debt, by effectively reducing the cost of precautionary saving, help agents to smooth consumption when they face price and employment fluctuations. The long-run optimal level of public debt is higher in an economy with aggregate fluctuations than in an economy without.
