Long-term debt and optimal policy in the fiscal theory of the price level

• 成果类型: Article
• 署名作者: Cochrane, JH
• 署名单位: University of Chicago; Federal Reserve System - USA; Federal Reserve Bank - Chicago; National Bureau of Economic Research
• 刊物名称: ECONOMETRICA
• ISSN/ISSBN: 0012-9682
• DOI: 10.1111/1468-0262.00179
• 发表日期: 2001
• 页码: 69-116
• 关键词: monetary; expectations; inflation

摘要

The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze long-term debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news of future deficits implies current inflation or future inflation. When long-term debt is present, the government can trade current inflation for future inflation by debt operations: this tradeoff is not present if the government rolls over short-term debt. The maturity structure of outstanding debt acts as a budget constraint determining which periods' price levels the government can affect by debt variation alone. In addition, debt policy-the expected pattern of future state-contingent debt sales, repurchases and redemptions-matters crucially for the effects of a debt operation. I solve for optimal debt policies to minimize the variance of inflation. I find cases in which long-term debt helps to stabilize inflation. I also find that the optimal policy produces lime series that are similar to U.S. surplus and debt time series. To understand the data, I must assume that debt policy offsets the inflationary impact of cyclical surplus shocks, rather than causing price level disturbances by policy-induced shocks. Shifting the objective from price level variance to inflation variance, the optimal policy produces much less volatile inflation at the cost of a unit root in the price level; this is consistent with the stabilization of U.S. inflation after the gold standard was abandoned.