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Nominal Debt as a Burden on Monetary Policy

Marimon, Ramon - 2007

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,...

Persistent link: https://www.econbiz.de/10012775481

Partial Default

Arellano, Cristina - 2019

initially increase and do not experience reductions upon resolution. This paper presents a theory of sovereign default that … replicates these properties, which are absent in standard sovereign default theory. Partial default is a flexible way to raise … as the defaulted debt accumulates and interest rate spreads increase. This theory is capable of rationalizing the large …

Persistent link: https://www.econbiz.de/10012866180

Can the Central Bank Alleviate Fiscal Burdens?

Reis, Ricardo - 2017

Central banks affect the resources available to fiscal authorities through the impact of their policies on the public debt, as well as through their income, their mix of assets, their liabilities, and their own solvency. This paper inspects the ability of the central bank to alleviate the fiscal...

Persistent link: https://www.econbiz.de/10012966585

Sovereign Debt Portfolios, Bond Risks, and the Credibility of Monetary Policy

Du, Wenxin - 2016

We document that governments whose local currency debt provides them with greater hedging benefits actually borrow more in foreign currency. We introduce two features into a government's debt portfolio choice problem to explain this finding: risk-averse lenders and lack of monetary policy...

Persistent link: https://www.econbiz.de/10012983672

The Political Economy of Debt and Entitlements

Bouton, Laurent - 2016

This paper presents a dynamic political-economic model of total government obligations. Its focus is on the interplay between debt and entitlements. In our model, both are tools by which temporarily powerful groups can extract resources from groups that will be powerful in the future: debt...

Persistent link: https://www.econbiz.de/10012984113

Optimal Domestic (and External) Sovereign Default

D'Erasmo, Pablo - 2016

Infrequent but turbulent episodes of outright sovereign default on domestic creditors are considered a “forgotten history” in Macroeconomics. We propose a heterogeneous-agents model in which optimal debt and default on domestic and foreign creditors are driven by distributional incentives...

Persistent link: https://www.econbiz.de/10012985197

Adverse Selection Dynamics in Privately-Produced Safe Debt Markets

Foley-Fisher, Nathan; Gorton, Gary B.; Verani, Stephane - 2022

Privately-produced safe debt is designed so that there is no adverse selection in trade. This is because no agent finds it profitable to produce private information about the debt’s backing and all agents know this (i.e., it is information-insensitive). But in some macro states, it becomes...

Persistent link: https://www.econbiz.de/10014091110

Sovereign Debt Buybacks Can Lower Bargaining Costs

Rotemberg, Julio J. - 2022

I develop two models in which debt repurchases by highly indebted sovereign nations are advantageous for all parties. The models are based on the idea that when sovereign debts are large, bargaining costs are large. Creditors spend more resources convincing the debtor that they are tough when...

Persistent link: https://www.econbiz.de/10014150683

On Public Spending and Economic Unions

Broner, Fernando; Martin, Alberto; Ventura, Jaume - 2022

We analyze the conduct of fiscal policy in a financially integrated union in the presence of financial frictions. Frictions create a wedge between the return to investment and the union interest rate. This leads to an over-spending externality. While the social cost of spending is the return to...

Persistent link: https://www.econbiz.de/10014093602

Excess Savings and Twin Deficits : The Transmission of Fiscal Stimulus in Open Economies

Aggarwal, Rishabh; Auclert, Adrien; Rognlie, Matthew; … - 2022

We study the effects of debt-financed fiscal transfers in a general equilibrium, heterogeneous-agent model of the world economy. In the long run, increases in government debt anywhere raise the world interest rate and increase private wealth everywhere. In the short run, a country with a...

Persistent link: https://www.econbiz.de/10014081636