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A model of currency depreciation and the debt-inflation spiral

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  • Obstfeld, Maurice

Abstract

This paper shows how a government that cannot make credible policy commitments might manage its exchange rate and fiscal stance in a world of rational expectations. The dynamic-game model developed here potentially can generate diverse patterns of macroeconomic behaviour, patterns that differ as a result of assumed differences in government objectives. Under some types of government, the ongoing strategic interaction between the public and private sectors leads to a disinflationary outcome. Other governments may push the economy into a spiral of rising debt and inflation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 15 (1991)
Issue (Month): 1 ()
Pages: 151-177

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Handle: RePEc:eee:dyncon:v:15:y:1991:i:1:p:151-177

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Web page: http://www.elsevier.com/locate/jedc

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Cited by:
  1. Bovenberg, A.L. & Beetsma, R.M.W.J., 1997. "Central Bank independence and public debt policy," Open Access publications from Tilburg University urn:nbn:nl:ui:12-74443, Tilburg University.
  2. Malley, Jim & Philippopoulos, Apostolis & Economides, George, 2002. "Testing for tax smoothing in a general equilibrium model of growth," European Journal of Political Economy, Elsevier, vol. 18(2), pages 301-315, June.
  3. Beetsma, Roel & Bovenberg, A Lans, 1995. "Does Monetary Unification Lead to Excessive Debt Accumulation?," CEPR Discussion Papers 1299, C.E.P.R. Discussion Papers.
  4. Beetsma,Roel M.W.J. & Bovenberg,A. Lans, 1995. "The role of public debt in the game of double chicken," Research Memorandum 025, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  5. Gauti B. Eggertsson, 2011. "Fiscal Multipliers and Policy Coordination," Working Papers Central Bank of Chile, Central Bank of Chile 628, Central Bank of Chile.
  6. Kollintzas, T. & Philippopoulos, A. & Vasillatos, V., 1999. "Is Tax Policy Coordination Necessary?," Athens University of Economics and Business, Athens University of Economics and Business, Department of International and European Economic Studies 110, Athens University of Economics and Business, Department of International and European Economic Studies.
  7. Margarita Katsimi, 2003. "Training, Job Security and Incentive Wages," CESifo Working Paper Series 955, CESifo Group Munich.
  8. Martin Ellison & Neil Rankin, 2005. " Optimal Monetary Policy When Lump-Sum Taxes Are Unavailable: A Reconsideration of the Outcomes under Commitment and Discretion," CDMA Conference Paper Series 0501, Centre for Dynamic Macroeconomic Analysis.
  9. Economides, George & Philippopoulos, Apostolis & Price, Simon, 2003. "How elections affect fiscal policy and growth: revisiting the mechanism," European Journal of Political Economy, Elsevier, vol. 19(4), pages 777-792, November.
  10. Natasha Miaouli, 2001. "Employment and Capital Accumulation in Unionised Labour Markets: Evidence from five south-European countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(1), pages 5-29.

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