We study the Ramsey policy problem in an economy in which firms face a collateral constraint. Issuing more public debt alleviates this friction by increasing the aggregate quantity of collateral. In so doing, however, the issuance of more debt also raises interest rates, which in turn increases...

This paper reviews alternative options for monetary policy when the short-term interest rate is at the zero lower bound and develops new empirical estimates of the effects of the maturity structure of publicly held debt on the term structure of interest rates. We use a model of risk-averse...

What circumstances or policies leave sovereign borrowers at the mercy of self-fulfilling increases in interest rates? To answer this question, we study the dynamics of debt and interest rates in a model where default is driven by insolvency. Fiscal deficits and surpluses are subject to shocks...

There is widespread feeling that current deficits, in Europe and the U.S.,may hurt rather than help the recovery. This paper examines some of the issues involved, through a sequence of three models.The first model focuses on sustainability and characterizes its determinants. It suggests that the...

The maturity structure of the U.S. government's outstanding debt has undergone large changes over time, at least in part because of shifts in the Treasury's debt management policy. During most of the post World War I1 period, an emphasis on short-term issues rapidly reduced the debt's average...

This paper deals with the international transmission of the effects of budget deficits on world rates of interest and spending. The model assumes a two-country world within which capital markets are integrated, individuals behave rationally, and the behavior of individuals and governments are...

Empirical studies suggest that fluctuations in the level and volatility of the world interest rate (as measured by the US treasury bill rate) affect sovereign spreads in emerging economies. We incorporate an estimated time-varying process for the world interest rate (with both level and...

The contrast between the early nineteenth century Argentinean experience of high inflation and the American experience of low inflation is interpreted in terms of a dynamic monetary model of optimal taxation. It is argued that the two countries' experiences diverged because of the different...

This paper begins by examining the persistence of movements in the U.S. Government%u2019s budget posture. Deficits display considerable persistence, and debt levels (relative to GDP) even more so. Further, the degree of persistence depends on what gives rise to budget deficits in the first...