Nominal debt as a burden on monetary policy
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- dc.contributor.author Díaz-Giménez, Javier
- dc.contributor.author Giovannetti, Giorgia
- dc.contributor.author Marimon, Ramon
- dc.contributor.author Teles, Pedro
- dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
- dc.date.accessioned 2020-05-25T09:27:07Z
- dc.date.available 2020-05-25T09:27:07Z
- dc.date.issued 2003-01-01
- dc.date.modified 2020-05-25T09:20:43Z
- dc.description.abstract We study the effects of nominal debt on the optimal sequential choice of monetary 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 commtiment to fiscal policy. If there is full commitment to an optimal fiscal policy, then the resulting monetary policy is the Friedman rule of zero nominal interest rates.
- dc.format.mimetype application/pdf*
- dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=841
- dc.identifier.uri http://hdl.handle.net/10230/1119
- dc.language.iso eng
- dc.relation.ispartofseries Economics and Business Working Papers Series; 841
- dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
- dc.rights.accessRights info:eu-repo/semantics/openAccess
- dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
- dc.subject.keyword time-consistency
- dc.subject.keyword monetary policy
- dc.subject.keyword debt
- dc.subject.keyword recursive equilibrium
- dc.subject.keyword Macroeconomics and International Economics
- dc.title Nominal debt as a burden on monetary policy
- dc.type info:eu-repo/semantics/workingPaper