In this paper, we examine the effects of introducing constraints on government borrowing using a continuous-time overlapping generations model of a small open economy. We consider government placing constraints on the amount of government bonds outstanding by establishing an upper limit, or...

Through a comparative dynamic analysis, we argue that the reality of public debt issuance, which responds flexibly to business cycles in contrast to the EU’s institutionally prescribed fiscal discipline, may contribute to macroeconomic stabilization. Through a simple econometric analysis, we...