Limits to national debt in a world economy with internationally differing growth rates
Limits to national debt in a world economy with internationally differing growth rates

Summary/Abstract: US Federal Reserve chairman Bernanke recently called for quick steps to rein in the exploding US budget deficit, warning failure to act could result in a serious crisis. While Bernanke did not elaborate on the nature of the alleged crisis this paper investigates it in a two-country OLG model of the world economy with internationally differing growth rates among advanced and emerging countries. We find that in the long run the concerns with respect to excessive national debt in slowly growing net foreign debtor countries are not warranted since limits to national debt count only in fast growing countries

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