Template-type: ReDIF-Paper 1.0
Author-Name: Ziesemer, Thomas
Author-Email: ziesemer@merit.unimaas.nl
Author-Workplace-Name: UNU-MERIT and University of Maastricht
Title: Estimations of US debt dynamics: Growth cum debt and the savings glut
	 in Kouri’s model
Abstract: We 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. The debt/GDP ratio will approach a value between 50% and 60% 
	 (depending on the specification used) unless a structural break 
	 increases the world interest rates or, similarly, US spreads reduce the 
	 US demand for foreign debt. A value of 50% will be achieved around 2040. 
	 We also find short-run deviations from this long-run path, which are 
	 characterized by non-sustainable explosive debt growth. These phases are 
	 characterized by high interest rates and followed by devaluations of the 
	 dollar. Our simple method allows detecting such phases early on by way 
	 of testing a stability condition rather than working with arbitrary 
	 threshold levels. The estimation of the whole model yields an elasticity 
	 of substitution for capital and labour of .155 with autocorrelation 
	 correction (and 1/3 without), a growth rate of labour-augmenting 
	 technical change of 1.65% (1.5%) and a corresponding initial level of 
	 labour productivity as of 1959 of about 350 (320). As a complement to 
	 the growth model we estimate the Kouri model using time-varying 
	 coefficients obtaining a forecast of the debt/GDP ratio of about 57% for 
	 2050 as for the growth model. As the rest of the world is catching up 
	 with the USA in terms of wealth this is a long-run version of Bernanke's 
	 savings glut idea.
Classification-JEL: F21, F43, O19, O40, O51
Keywords: Growth, Debt, Capital movements, Productivity, Time-varying 
	 coefficients, Non-linear GMM growth model estimation, Asset markets
Series: UNU-MERIT Working Papers
Creation-Date: 2007
Number: 003
File-URL: http://www.merit.unu.edu/publications/wppdf/2007/wp2007-003.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2007003