EconPapers    
Economics at your fingertips  
 

Deficit Rules and Monetization in a Growth Model with Multiplicity and Indeterminacy

Maxime Menuet (), Alexandru Minea () and Patrick Villieu ()

Working Papers from HAL

Abstract: In response to the Great Recession, Central Banks around the world adopted " unconven-tional " monetary policies. In particular, the Fed, and more recently the ECB, launched massive debt monetization programs. In this paper, we develop a formal analysis of the short-and long-run consequences of deficit and debt monetization, through an endoge-nous growth model in which economic growth interacts with productive public expenditure. This interaction can generate two positive balanced growth paths (BGP) in the long-run: a high BGP and a low BGP, and further, depending on the form of the CIA constraint, possible multiplicity and indeterminacy. Thus, monetizing deficits is found to be remarkably powerful. First, a large dose of monetization might allow avoiding, whenever present, BGP indeterminacy. Second, monetization always allows increasing growth and welfare along the (high) BGP, by weakening the debt burden in the long-run. Third, with a CIA on consumption only, monetization provides a rationale for deficits in the long-run: for high degrees of monetization, the impact of deficits and debts on economic growth and welfare becomes positive in the steady-state.

Keywords: public debt; indeterminacy; monetization; economic growth (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg, nep-gro and nep-mon
Date: 2015-09-17
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01199774
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://halshs.archives-ouvertes.fr/halshs-01199774/document (application/pdf)

Related works:
Working Paper: Deficit Rules and Monetization in a Growth Model with Multiplicity and Indeterminacy (2016) Downloads
Working Paper: Deficit Rules and Monetization in a Growth Model with Multiplicity and Indeterminacy (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-01199774

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2019-08-20
Handle: RePEc:hal:wpaper:halshs-01199774