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Determination of Optimal Public Debt Ceiling for Kenya Using Stochastic Control
Science Journal of Applied Mathematics and Statistics
Volume 6, Issue 3, June 2018, Pages: 90-98
Received: May 13, 2018; Accepted: Jun. 19, 2018; Published: Jul. 23, 2018
Authors
Millicent Kithinji, Strathmore Institute of Mathematical Sciences, Strathmore University, Nairobi, Kenya
Lucy Muthoni, Strathmore Institute of Mathematical Sciences, Strathmore University, Nairobi, Kenya
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Abstract
Public debt is a key economic variable. It is the totality of public and publicly guaranteed debt owed by any level of government to either citizens or foreigners or both. Due to recent debt crises in countries such as Portugal, Italy, Ireland, Greece and Spain, debt control has become a key important fiscal policy of every government. In this study, we applied a Public debt ceiling explicit formula to find out the optimal public debt ceiling for Kenya [3]. We made modification to subjective variables in the explicit formula and used the formula to find the optimal public debt ceiling for Kenya. We illustrate that it is prudent for that government to use a fiscal policy that maintains the debt ratio under an optimal debt ceiling.
Keywords
Stochastic Optimal Control, Public Debt, Debt Ceiling, Hamilton-Jacobi-Bellman Equation, Value Function, Control Process
Millicent Kithinji, Lucy Muthoni, Determination of Optimal Public Debt Ceiling for Kenya Using Stochastic Control, Science Journal of Applied Mathematics and Statistics. Vol. 6, No. 3, 2018, pp. 90-98. doi: 10.11648/j.sjams.20180603.14
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