Credibility and Nominal Debt: Exploring the Role of Maturity in Managing Inflation
28 Pages Posted: 15 Feb 2006
Date Written: September 14, 1989
Abstract
This paper focuses on the role of debt maturity in managing the government`s incentives to use opportunistic inflation to reduce the ex post real value of its nominal liabilities. The maturity structure of government debt is shown to be a powerful instrument to affect the time profile of the inflation tax base and, hence, to mitigate the distortions introduced by time inconsistency on taxation policies. The nature of the optimal policy is shown to be heavily dependent on the type of precommitment enjoyed by policymakers.
JEL Classification: 320
Suggested Citation: Suggested Citation
Guidotti, Pablo E., Credibility and Nominal Debt: Exploring the Role of Maturity in Managing Inflation (September 14, 1989). IMF Working Paper No. 89/73, Available at SSRN: https://ssrn.com/abstract=884960
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