Inflating Away the Public Debt? An Empirical Assessment

Jens Hilscher, Alon Raviv and Ricardo Reis

No 74, Working Papers from Brandeis University, Department of Economics and International Business School

Abstract: We propose and implement a method that provides quantitative estimates of the extent to which higher-than-expected infl ation can lower the real value of outstand- ing 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 infl ation at differ- ent horizons. The estimates suggest that it is unlikely that infl ation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead in flation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.

Keywords: inflation options; maturity of government debt; copulas; required reserves. (search for similar items in EconPapers)
JEL-codes: E31 E64 G18 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2014-07
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

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http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP74.pdf First version, 2014 (application/pdf)

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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Persistent link: https://EconPapers.repec.org/RePEc:brd:wpaper:74

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