Public debt and changing inflation targets

Michael Krause and Stéphane Moyen

No 06/2013, Discussion Papers from Deutsche Bundesbank

Abstract: What are the effects of a higher central bank inflation target on the burden of real public debt? Several recent proposals have suggested that even a moderate increase in the inflation target can have a pronounced effect on real public debt. We consider this question in a New Keynesian model with a maturity structure of public debt and an imperfectly observed inflation target. We find that moderate changes in the inflation target only have significant effects on real public debt if they are essentially permanent. Moreover, the additional benefits of not communicating a change in the inflation target are minor.

Keywords: public debt; learning; inflation target; callable perpetuity; debt maturity (search for similar items in EconPapers)
JEL-codes: E31 E52 H63 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (12)

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Journal Article: Public Debt and Changing Inflation Targets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:062013

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