Abstract
The reduction of government debt to 60% of the GDP in order to satisfy the requirements of the Maastricht Treaty for participation in the European Monetary Union is one of the primary economic-policy goals for most of the European Union countries. The first aim of the present paper is to characterize the optimal path of the primary surplus that leads to the achievement of this Maastricht target. Using optimal-control theory we are able to determine an upper bound of the public-debt-to-GDP ratio above which no retrenchment policy becomes effective. The second issue taken up is that of the sensitivity analysis with respect to the initial level of the debt-to-GDP ratio, the growth rate of the economy, the interest rate, the inflation rate, and the inverse of the velocity of the monetary base circulation.
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Prskawetz, A., Feichtinger, G. & Luptàčik, M. The accomplishment of the Maastricht criteria with respect to initial debt. Zeitschr. f. Nationalökonomie 68, 93–110 (1998). https://doi.org/10.1007/BF01237186
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DOI: https://doi.org/10.1007/BF01237186