Controlling Inflation: The Problem of Non-Indexed Debt

International Monetary Fund

No 1988/029, IMF Working Papers from International Monetary Fund

Abstract: We show that the presence of nominal non-indexed government debt could give rise to more than one equilibrium inflation rate. Conditions for this to occur are discussed in terms of ad hoc and micro-founded models. Solutions to the indeterminacy problem are examined; one solution is shown to be price indexation of debt instruments.

Keywords: WP; nominal interest rate; rate of inflation; real rate of interest; high-inflation equilibrium; private sector; cost-minimization problem; low-inflation equilibrium; Inflation; Real interest rates; Government debt management; Debt service; Global (search for similar items in EconPapers)
Pages: 28
Date: 1988-01-01
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