Author : George-Marios Angeletos
Publisher :
ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.:/5 (827 download)
Book Synopsis Optimal Public Debt Management and Liquidity Provision by : George-Marios Angeletos
Download or read book Optimal Public Debt Management and Liquidity Provision written by George-Marios Angeletos and published by . This book was released on 2012 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 the tax burden of servicing the entire outstanding debt. We first document how this trade-off upsets the optimality of tax smoothing and, in contrast to the standard paradigm, helps induce a unique and stable steady-state level of debt in the deterministic version of the model. We next study the optimal policy response to fiscal and financial shocks in the stochastic version. We finally show how the results extend to a variant model in which the financial friction afflicts consumers rather than firms. Keywords: public debt, liquidity, optimal fiscal policy, Ramsey, Friedman rule, financial frictions. JEL Classification: E4, E6, H6.