Whatever It Takes Is All You Need: Monetary Policy and Debt Fragility

• 成果类型: Article
• 署名作者: Camous, Antoine; Cooper, Russell
• 署名单位: University of Mannheim; European University Institute; Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park
• 刊物名称: AMERICAN ECONOMIC JOURNAL-MACROECONOMICS
• ISSN/ISSBN: 1945-7707
• DOI: 10.1257/mac.20170167
• 发表日期: 2019
• 页码: 38-81
• 关键词: equilibrium; money

摘要

The valuation of government debt is subject to strategic uncertainty. Pessimistic lenders, fearing default, bid down the price of debt, leaving a government with a higher debt burden. This increases the likelihood of default, thus confirming the pessimism of lenders. Can monetary interventions mitigate debt fragility? With one-period commitment to a state-contingent policy, the monetary authority can indeed overcome strategic uncertainty. Under discretion, debt-fragility remains unless reputation effects are sufficiently strong. Simpler forms of interventions, such as an inflation target, cannot eliminate debt fragility.