Nominal debt as a burden on monetary policy

Javier Díaz-Giménez, Giorgia Giovannetti, Ramon Marimon*, Pedro Teles

*Autor correspondente para este trabalho

Resultado de pesquisarevisão de pares

35 Citações (Scopus)

Resumo

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.
Idioma originalEnglish
Páginas (de-até)493-514
Número de páginas22
RevistaReview of Economic Dynamics
Volume11
Número de emissão3
DOIs
Estado da publicaçãoPublicado - jul 2008

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