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