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Example 1
DEBT = 0.5
INT = 0.04
GRO = 0.02
PSB* = 0.5(0.04-0.02) = +0.01
November 30, 2015 Ed Dolan’s Econ Blog
Example 1: The Math
If there is a constant primary
structural surplus of 1% of GDP,
the debt ratio will remain
constant at 50% of GDP
If PSB <1% (a smaller surplus
or a deficit) the debt will grow
If PSB>1% the debt will shrink
Total interest payments (INT
times DEBT) will be 2% of GDP,
so stability of the debt implies an
overall structural balance,
including interest of -1% (a
structural deficit)