Aguiar, Mark; Amador, Manuel; Farhi, Emmanuel; … - Department of Economics, Harvard University - 2014
We propose a continuous time model to investigate the impact of inflation credibility on sovereign debt dynamics. At … every point in time, an impatient government decides fiscal surplus and inflation, without commitment. Inflation is costly …: (i) impatience and (ii) the desire to conquer low inflation. A large increase in inflation credibility can trigger a …