We use stochastic optimal control-dynamic programming (DP) to derive the optimal foreign debt/net worth, consumption/net worth, current account/net worth, and endogenous growth rate in an open economy. Unlike the literature that uses an Intertemporal Budget Constraint (IBC) or the Maximum...

The recent financial crises, especially the debt crisis in Asia, have led to questions such as: what are their causes, what is an excessive debt and how vulnerable is an economy to external shocks? We develop an economic model of international finance and debt based upon two sources of...