Nominal Debt as a Burden to Monetary Policy

Giorgia Giovannetti (), Ramon Marimon and Pedro Teles ()

No 1387, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: We study a dynamic equilibrium model where the same optimal monetary policy is implemented with and without full commitment if government debt is indexed. In contrast, with nominal debt, the full commitment policy is time inconsistent, since the government is tempted to inflate away its nominal liabilities. We characterize the optimal sequential policy. It has the feature that government debt is progressively depleted, and so, eventually, the time inconsistency problem vanishes. We compare this equilibrium to a myopic solution and to the Ramsey solution.

Date: 2000-08-01
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Related works:
Working Paper: Nominal Debt as a Burden on Monetary Policy (2007)
Working Paper: Nominal Debt as a Burden on Monetary Policy (2006)
Working Paper: Nominal Debt as a Burden on Monetary Policy (2007)
Working Paper: Nominal debt as a burden on monetary policy (2004)
Working Paper: Nominal Debt as a Burden on Monetary Policy (2007)
Journal Article: Nominal Debt as a Burden on Monetary Policy (2008)
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