Inflating Away the Public Debt? An Empirical Assessment

Jens Hilscher, Alon Raviv and Ricardo Reis

No 20339, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.

JEL-codes: E31 E64 G18 (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-mac
Note: AP EFG ME
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Citations: View citations in EconPapers (55)

Published as Jens Hilscher & Alon Raviv & Ricardo Reis & Philip Strahan, 2022. "Inflating Away the Public Debt? An Empirical Assessment," The Review of Financial Studies, vol 35(3), pages 1553-1595.

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Related works:
Journal Article: Inflating Away the Public Debt? An Empirical Assessment (2022)
Working Paper: Inflating away the public debt? An empirical assessment (2022)
Working Paper: Inflating Away the Public Debt? An Empirical Assessment (2014)
Working Paper: Inflating Away the Public Debt? An Empirical Assessment (2014)
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