Nominal debt as a burden on monetary policy
By: Javier Díaz-Giménez ... [et al.].
Contributors: Díaz-Giménez, Javier.
Series: Working paper series ;; WP-2004-10; Working paper series (Federal Reserve Bank of Chicago. Research Dept. : Online) ;; WP-2004-10.
Publisher: Federal Reserve Bank of Chicago
Published: 2004
Place of publication: [Chicago, Ill.]
Language: eng
Format: Electronic resource
Subjects: Debts, Public -- Econometric models.
Description: "We study the effects of nominal debt on the optimal sequential choice of monetary and debt policy.  When the stock of debt is nominal, the incentive to generate unanticipated inflation increases the cost of the outstanding debt even if no unanticipated inflation episodes occur in equilibrium.  Without full commitment, the optimal sequential policy is to deplete the outstanding stock of debt progressively until these extra costs disappear.  Nominal debt is therefore a burden on monetary policy, not only because it must be serviced, but also because it creates a time inconsistency problem that distorts interest rates.  The introduction of alternative forms of taxation may lessen this burden, if there is enough commitment to fiscal policy"--Federal Reserve Bank of Chicago web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 9/29/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.