Where
PS t-1 = lag of surplus-to-GDP ratio
4.1.3 Debt Dynamics
For assessing debt sustainability, debt dynamics is analyzed by following Bohn (1998). This dynamics is
based on the short run relationship of surplus-to-GDP and debt-to-GDP ratio. So if temporarily two series
moves away from each other in the short run, there is adjustment and debt-to-GDP ratio revert to its mean.
The short run relationship becomes: