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Optimal Public Debt Management and Liquidity Provision / George-Marios Angeletos, Fabrice Collard, Harris Dellas, Behzad Diba.
- Format:
- Book
- Author/Creator:
- Angeletos, George-Marios.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w18800.
- NBER working paper series no. w18800
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2013.
- Summary:
- 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.
- Notes:
- Print version record
- February 2013.
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