Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76605
Authors: 
Stein, Jerome L.
Year of Publication: 
2003
Series/Report no.: 
CESifo Working Paper 1043
Abstract: 
What is an optimal or a sustainable external debt - for a country, region or sector? How should one monitor and evaluate debt to preclude a crisis? We use stochastic optimal control/dynamic programming to derive an optimal debt. The deviation of the actual from the optimal will serve as a Warning Signal of a crisis. There is a correspondence between Hamilton-Jacobi-Bellman equation of Dynamic Programming and the static Mean-Variance (M-V) analysis in finance. A graphic analysis of M-V is helpful to explain the implications of DP. An explicit example is the US Agricultural debt crisis.
Subjects: 
stochastic optimal control
debt
international finance
US agricultural crisis
Mean-Variance analysis
Hamilton-Jacobi-Bellaman equation
Document Type: 
Working Paper

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