Public Debt and Changing Inflation Targets

Michael Krause and Stéphane Moyen

American Economic Journal: Macroeconomics, 2016, vol. 8, issue 4, 142-76

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.

JEL-codes: E12 E31 E52 H63 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/mac.20130014
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Citations: View citations in EconPapers (35)

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