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Public Debt as Private Liquidity: Optimal Policy / George-Marios Angeletos, Fabrice Collard, Harris Dellas.
- Format:
- Book
- Author/Creator:
- Angeletos, George-Marios.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w22794.
- NBER working paper series no. w22794
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Public Debt as Private Liquidity
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2016.
- Summary:
- We study optimal policy in an economy in which public debt is used as collateral or liquidity buffer. Issuing more public debt raises welfare by easing the underlying financial friction; but this easing lowers the liquidity premium and increases the government's cost of borrowing. These considerations, which are absent in the basic Ramsey paradigm, help pin down a unique, long-run level of public debt. They require a front-loaded tax response to government-spending shocks, instead of tax smoothing. And they explain why a financial recession, more than a traditional one, makes government borrowing cheaper, optimally supporting larger fiscal stimuli.
- Notes:
- Print version record
- November 2016.
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