Model of interest rate with government ponzi games and debt dynamics under uncertainty within fiscal federalism

Abstract

This paper presents two objectives: in the first part, we make a presentation of interest rate equations in a historical overview, from Irwing Fisher to John Maynard Keynes. Second part is designed to quarterly estimated structural macro econometric model for the Republic of Moldova, denoted A Classical Macroeconometric Data Model for the Republic of Moldova (MDM) in context of Neo-Classical Approach of the Economy. This model has been developed with four uses in mind: the assessment of economic conditions in the Republic of Moldova, macroeconomic forecasting, policy analysis and deepening understanding of the functioning of market economy. As research methods, the paper comprises elements of stochastic long run simulations. The relationship between: interest rate and economic growth is insignificant. As results, we found that for the Republic of Moldova, Taylor's rule (interest rate, in New Keynesian approach) together with Macroeconomic Cointeg (database, 162 obs., in Neo Classical approach) would be the best fit. The gross domestic product contributes insignificantly to the calculation of the interest rate, other elements would influence the economy, such as the budget deficit, the inflation rate, foreign remittances, investment policy and agriculture.