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Estimations Of US Debt Dynamics: Growth Cum Debt And The Savings Glut In Kouri?s Model

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Executive Summary

The authors derive the central differential equation of the neoclassical growth model for the case of a CES (Constant Elasticity of Substitution) production function with perfect capital movement in terms of the debt/GDP ratio and estimate it in several ways for the United States and in a later step the whole model. Debt data are derived from the accumulation of differences between investment and savings. The result is that at least since 1960 the US debt/GDP ratio follows the pattern of a stable differential equation, which will lead to a long-run debtor position.

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