Determination of optimal public debt ceiling for Kenya using stochastic control
Date
2018
Authors
Kithinji, Millicent
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
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 developed 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 formula proposed by (Cadenillas and Aguilar, 2015) to find out the optimal public debt ceiling for Kenya. 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.
Description
A Dissertation submitted in partial fulfillment of the requirements for the Master of Science in Mathematical Finance (MSc.MF) at Strathmore University
Keywords
Stochastic Optimal Control, Public debt, Debt ceiling, Hamilton- Jacobi-Bellman equation, Value function, Control process