Optimal Fiscal and Monetary Policy, Debt Crisis and Management / Cristiano Cantore, Paul Levine, Giovanni Melina, Joseph Pearlman.

Format:

Book

Government document

Author/Creator:

Cantore, Cristiano.

Contributor:

Levine, Paul.

Melina, Giovanni.

Pearlman, Joseph.

Series:

IMF Working Papers; Working Paper ; No. 2017/078

IMF Working Papers

Language:

English

Subjects (All):

Debts, Public.

Monetary policy.

Fiscal policy.

Physical Description:

1 online resource (44 pages) : illustrations (some color), tables, graphs.

Place of Publication:

Washington, D.C. : International Monetary Fund, 2017.

Summary:

The initial government debt-to-GDP ratio and the government’s commitment play a pivotal role in determining the welfare-optimal speed of fiscal consolidation in the management of a debt crisis. Under commitment, for low or moderate initial government debt-to-GPD ratios, the optimal consolidation is very slow. A faster pace is optimal when the economy starts from a high level of public debt implying high sovereign risk premia, unless these are suppressed via a bailout by official creditors. Under discretion, the cost of not being able to commit is reflected into a quick consolidation of government debt. Simple monetary-fiscal rules with passive fiscal policy, designed for an environment with “normal shocks”, perform reasonably well in mimicking the Ramsey-optimal response to one-off government debt shocks. When the government can issue also long-term bonds–under commitment–the optimal debt consolidation pace is slower than in the case of short-term bonds only, and entails an increase in the ratio between long and short-term bonds.

Notes:

Description based on online resource; title from PDF title page (ebrary, viewed May 5, 2017).

ISBN:

9781475590197

1475590199

9781475590227

1475590229