Nominal Debt as a Burden on Monetary Policy

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dc.contributor.author DIAZ-GIMENEZ, Javier
dc.contributor.author GIOVANNETTI, Giorgia
dc.contributor.author MARIMON, Ramon
dc.contributor.author TELES, Pedro
dc.date.accessioned 2008-01-09T15:10:54Z
dc.date.available 2008-01-09T15:10:54Z
dc.date.issued 2007
dc.identifier.issn 1830-7728
dc.identifier.uri http://hdl.handle.net/1814/7729
dc.description.abstract We characterize the optimal sequential choice of monetary policy in economies with either nominal or indexed debt. In a model where nominal debt is the only source of time inconsistency, the Markov-perfect equilibrium policy implies the progressive depletion of the outstanding stock of debt, until the time inconsistency disappears. There is a resulting welfare loss if debt is nominal rather than indexed. We also analyze the case where monetary policy is time inconsistent even when debt is indexed. In this case, with nominal debt, the sequential optimal policy converges to a time-consistent steady state with positive – or negative – debt, depending on the value of the intertemporal elasticity of substitution. Welfare can be higher if debt is nominal rather than indexed and the level of debt is not too high. en
dc.language.iso en en
dc.publisher European University Institute
dc.relation.ispartofseries EUI MWP en
dc.relation.ispartofseries 2007/40 en
dc.subject nominal debt en
dc.subject indexed debt en
dc.subject optimal monetary policy en
dc.subject time consistency en
dc.subject Markov-perfect equilibrium en
dc.title Nominal Debt as a Burden on Monetary Policy en
dc.type Working Paper en
dc.neeo.contributor DIAZ-GIMENEZ|Javier|aut|
dc.neeo.contributor GIOVANNETTI|Giorgia|aut|
dc.neeo.contributor MARIMON|Ramon|aut|EUI70009
dc.neeo.contributor TELES|Pedro|aut|
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