National Debt Sustainability and the Dynamics in the Economy of Diamond

David de la Croix and Philippe Michel

G.R.E.Q.A.M. from Universite Aix-Marseille III

Abstract: We analyze the effect of a constant debt policy on capital accumulation and provide an indepth treatment of the dynamics in the economy of Diamond. We derive the conditions for avoiding a debt crisis in both the short-run and the long-run and provide geometrical tools to analyze the issue of sustainability. There is always a level of debt enduring that any level of capital between 0 and an upper limit, and in particular the Golden rate equilibrium, exists as a steady-state equilibrium ,yet it is not necessarily stalbe. We also discuss poverty trap issues.

Keywords: POVERTY; BUSINESS CYCLES; ECONOMIC GROWTH; DEBT (search for similar items in EconPapers)
JEL-codes: E32 H70 O41 (search for similar items in EconPapers)
Pages: 20 pages
Date: 1999
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Citations: View citations in EconPapers (1)

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Working Paper: National Debt Sustainability and the Dynamics in the Economy of Diamond (1999)
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