As a result of the BoJ's large-scale asset purchases, the consolidated Japanese government borrows mostly at the floating rate from households and invests in longer-duration risky assets to earn an extra 3% of GDP. We quantify the impact of Japan's low-rate policies on its government and...

Financial repression can be used to avoid a government default when fiscal policy is constrained. We present a model showing that optimal financial repression progresses through successive stages with increasing levels of distortion. Data from advanced economies suggest that the initial stage of...

In HANK models, fiscal deficits drive aggregate demand and thus inflation because households are non-Ricardian; in the Fiscal Theory of the Price Level (FTPL), they instead do so via equilibrium selection. Because of this difference, the mapping from deficits to inflation in HANK is robust to...

We append the expectation of a monetary-fiscal reform into a standard New Keynesian model. If a reform occurs, monetary policy will temporarily aid debt sustainability through a temporary burst in inflation. The anticipation of a possible reform links debt levels with inflation expectations. As...

Theoretical models have suggested that sanctions may be important for enforcing sovereign debt contracts (Bulow and Rogoff, 1989a, 1989b). This paper examines the role of sanctions in promoting debt repayment during the classical gold standard period. We analyze a wide range of sanctions...

In an environment characterized by weak contractual enforcement, sovereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure. We show within a simple model how competition for repayment between lenders may result in sovereign debt that is...

We analyze the democratic politics of a rule that separates capital and ordinary account budgets and allows the government to issue debt to finance capital items only. Many national governments followed this rule in the 18th and 19th centuries and most U.S. states do today. This simple 1800s...

We analyze fiscal policy and fiscal sustainability in Japan using a variant of the methodology developed in Blanchard (1990). We find that Japan can achieve fiscal sustainability over a 100-year horizon with relatively small changes in the tax-to-GDP ratio. Our analysis differs from more...