Debt, Cash Flow and Inflation Incentives: A Swedish Example

Mats Persson, Torsten Persson and Lars Svensson
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Mats Persson: Stockholm University
Torsten Persson: Stockholm University

Chapter 2 in The Debt Burden and its Consequences for Monetary Policy, 1998, pp 28-66 from Palgrave Macmillan

Abstract: Abstract Can higher inflation diminish the government debt and contribute to financing the budget deficit? And how do these public finance concerns influence inflationary expectations? These have been classic questions in macroeconomics since the seminal papers by Auemheimer (1974), Calvo (1978) and Barro (1983). The same questions recently became very relevant for several European countries in the aftermath of the 1992–3 Exchange Rate Mechanism crisis. In Sweden, our own country, the government deficit in 1994 stood at about 13 per cent of GDP.2 Increasing long bond rates and a depreciating kronor — as well as higher volatility in financial markets — were often explained by a fear that ‘politicians would lose control of government finances and resort to higher inflation as a solution.’ Developments in other countries with high debts and deficits, such as Italy or Spain, were similar.

Keywords: Monetary Policy; Cash Flow; Central Bank; Inflation Rate; Real Interest Rate (search for similar items in EconPapers)
Date: 1998
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Related works:
Working Paper: Debt, cash flow and inflation incentives: A Swedish example (1997)
Working Paper: Debt, Cash Flow and Inflation Incentives: A Swedish Example (1996)
Working Paper: Debt, Cash Flow and Inflation Incentives: A Swedish Example (1996)
Working Paper: Debt, Cash Flow and Inflation Incentives: A Swedish Example (1996)
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DOI: 10.1007/978-1-349-26077-5_2

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