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Author:
Publisher:
ISBN:
Category : Debt
Languages : en
Pages : 28
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Book Description
We characterize the optimal sequential choice of monetary policy in economies with either nominal or indexed debt. In a model where nominal debt is the only source of time inconsistency, the Markov-perfect equilibrium policy implies the progressive depletion of the outstanding stock of debt, until the time inconsistency disappears. There is a resulting welfare loss if debt is nominal rather than indexed. We also analyze the case where monetary policy is time inconsistent even when debt is indexed. In this case, with nominal debt, the sequential optimal policy converges to a time-consistent steady state with positive -- or negative -- debt, depending on the value of the intertemporal elasticity of substitution. Welfare can be higher if debt is nominal rather than indexed and the level of debt is not too high.
Author:
Publisher:
ISBN:
Category : Debt
Languages : en
Pages : 28
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Book Description
We characterize the optimal sequential choice of monetary policy in economies with either nominal or indexed debt. In a model where nominal debt is the only source of time inconsistency, the Markov-perfect equilibrium policy implies the progressive depletion of the outstanding stock of debt, until the time inconsistency disappears. There is a resulting welfare loss if debt is nominal rather than indexed. We also analyze the case where monetary policy is time inconsistent even when debt is indexed. In this case, with nominal debt, the sequential optimal policy converges to a time-consistent steady state with positive -- or negative -- debt, depending on the value of the intertemporal elasticity of substitution. Welfare can be higher if debt is nominal rather than indexed and the level of debt is not too high.
Author: Guillermo Calvo
Publisher: Springer
ISBN: 1349260770
Category : Business & Economics
Languages : en
Pages : 307
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Book Description
In all countries debt and deficits of the public sector are at the heart of economic policy debate. Debt and deficits pose major problems, all the more pressing in Europe because of the Maastricht criteria for entry into European Monetary Union. And in the developing world debt has been associated with major financial crises. This volume, arising from an International Economic Association conference at the Bundesbank, sees academics and policy makers debate the key issues and their implications in theory and practice.
Author: Javier Díaz-Giménez
Publisher:
ISBN:
Category : Debts, Public
Languages : en
Pages : 32
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Book Description
Author: Javier Díaz-Giménez
Publisher:
ISBN:
Category : Debts, Public
Languages : en
Pages : 23
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Book Description
Author:
Publisher:
ISBN:
Category : Debts, Public
Languages : en
Pages : 23
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Book Description
"We study the effects of nominal debt on the optimal sequential choice of monetary and debt policy. When the stock of debt is nominal, the incentive to generate unanticipated inflation increases the cost of the outstanding debt even if no unanticipated inflation episodes occur in equilibrium. Without full commitment, the optimal sequential policy is to deplete the outstanding stock of debt progressively until these extra costs disappear. Nominal debt is therefore a burden on monetary policy, not only because it must be serviced, but also because it creates a time inconsistency problem that distorts interest rates. The introduction of alternative forms of taxation may lessen this burden, if there is enough commitment to fiscal policy"--Federal Reserve Bank of Chicago web site.
Author: Michael T. Gapen
Publisher: International Monetary Fund
ISBN: 1451875371
Category : Business & Economics
Languages : en
Pages : 40
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Book Description
This paper highlights the importance of debt composition in setting optimal fiscal and monetary policy over short-run business cycles and in the long run. Nominal debt as state-contingent debt can be a significant policy tool to reduce the volatility of distortionary government policy, thereby reducing macroeconomic volatility while increasing equilibrium output and consumption. The welfare gain from using nominal debt to hedge against shocks to the government budget is as large as the welfare gain from the ability to issue debt.
Author: Guillermo A. Calvo
Publisher: Palgrave Macmillan
ISBN: 9780312175795
Category : Business & Economics
Languages : en
Pages : 292
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Book Description
The essays in this volume reflect on the fact that in all countries debt and deficits of the public sector are at heart: of economic policy debate. Debt and deficits pose major problems, all the more pressing in Europe because of the Maastricht criteria for entry into European Monetary Union. In the developing world debt has been associated with major financial crises.
Author: Guillermo A. Calvo
Publisher:
ISBN: 9781349260799
Category : Debts, Public
Languages : en
Pages : 292
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Book Description
Author: Liam Graham
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
How is the impact of monetary policy affected by the nature of nominal debt contracts? How does this change if the interest payments on the debt are fixed or floating? To address these questions, we add a model of financial institutions' behaviour to a dynamic general equilibrium model in which some households face credit constraints. We analyse these affects of inflationary shocks, and derive implications for monetary policy. We question the common view that inflationary shocks necessarily result in debtors increasing their consumption. We also provide a potential explanation for interest rate smoothing on the part of central banks.
Author: Stephen Wright
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
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Book Description
