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Debt as Safe Asset
Brunnermeier, Markus K.; Merkel, Sebastian; Sannikov, Yuliy - 2022
The price of a safe asset reflects not only the expected discounted future cash flows but also future service flows, since retrading allows partial insurance of idiosyncratic risk in an incomplete markets setting. This lowers the issuers’ interest burden and allows the government to run a...
Persistent link: https://www.econbiz.de/10013308246
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FTPL and the Maturity Structure of Government Debt in the New Keynesian Model
Liemen, Max Ole; Posch, Olaf - 2022
In this paper, we revisit the fiscal theory of the price level (FTPL) within the New Keynesian (NK) model. We show in … which cases the average maturity of government debt matters for the transmission of policy shocks. The central task of this … paper is to shed light on the theoretical predictions of the maturity structure on macro dynamics with an emphasis on model …
Persistent link: https://www.econbiz.de/10014080233
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The Euro Area Periphery Sovereigns' Fiscal Positions and Unconventional Monetary Policy
Hülsewig, Oliver - 2020
We explore the reaction of the euro area periphery sovereigns' fiscal positions to an unconventional monetary policy shock. We estimate panel vector autoregressive (VAR) models over the period 2010-2018, and identify the shock by imposing sign restrictions. Our results suggest that the...
Persistent link: https://www.econbiz.de/10012843420
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Manufacturing Risk-Free Government Debt
Jiang, Zhengyang; Lustig, Hanno; Van Nieuwerburgh, Stijn; … - 2021
Governments face a trade-off between insuring bondholders and taxpayers. If the government fully insures bondholders by manufacturing risk-free zero-beta debt, then it cannot also insure taxpayers against permanent macroeconomic shocks over long horizons. Instead, taxpayers will pay more in...
Persistent link: https://www.econbiz.de/10013244247
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Sovereign Defaults and Debt Sustainability : The Debt Recovery Channel
Diarra, Ibrahima; Guillard, Michel; Kempf, Hubert - 2022
This paper focuses on the debt recovery channel linking the dynamics of public debt to partial sovereign defaults. We build a simple model which incorporates sovereign default and a debt recovery rule. It depends on a parameter that allows for partial debt recovery. We show that the maximum...
Persistent link: https://www.econbiz.de/10013292498
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Uncertainty and the Cost of Bank vs. Bond Finance
Grimme, Christian - 2019
How does uncertainty affect the costs of raising finance in the bond market and via bank loans? Empirically, this paper finds that heightened uncertainty is accompanied by an increase in corporate bond yields and a decrease in bank lending rates. This finding can be explained with a model that...
Persistent link: https://www.econbiz.de/10012892132
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To React or Not? Fiscal Policy, Volatility and Welfare in the EU-3
Malley, Jim - 2008
This paper develops a dynamic stochastic general equilibrium model to examine the quantitative macroeconomic implications of countercyclical fiscal policy for France, Germany and the UK. The model incorporates real wage rigidity which is the particular market failure justifying policy...
Persistent link: https://www.econbiz.de/10012773638
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Sovereign Default and Imperfect Tax Enforcement
Pappadà, Francesco - 2019
We show that, in many countries, tax compliance is volatile and markedly responds to fiscal policy. To explore the consequence of this novel stylized fact, we build a model of sovereign debt with limited commitment and imperfect tax enforcement. Fiscal policy persistently affects the size of the...
Persistent link: https://www.econbiz.de/10012867017
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Public Debt and the Political Economy of Reforms
Boyer, Pierre; Esslinger, Christoph; Roberson, Brian - 2021
We develop a two-period model of redistributive politics in which two politicians compete in an election in each period. In the first period, the politicians propose both whether to experiment with an efficient reform with uncertain benefits and choose the amount of public debt. Politicians also...
Persistent link: https://www.econbiz.de/10013236278
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Climate Policy and Optimal Public Debt
Kellner, Maximilian; Runkel, Marco - 2021
This paper analyzes the optimal level of public debt when taxes are used not only for funding public expenditures but also for correcting externalities from climate change. Taking into account externalities implies that the optimal policy deviates from tax smoothing. Provided cumulative marginal...
Persistent link: https://www.econbiz.de/10013249650