Monetary policy under a fiscal theory of sovereign default
AbstractThis paper examines equilibrium determination under different monetary policy regimes when the government might default on its debt. We apply a cash-in-advance model where the government does not have access to non-distortionary taxation and does not account for initial outstanding debt when it sets the income tax rate. Solvency is then not guaranteed and sovereign default can affect the return on public debt. If the central bank sets the interest rate in a conventional way, the equilibrium allocation cannot be determined. If, instead, money supply is controlled, the equilibrium allocation can uniquely be determined.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 145 (2010)
Issue (Month): 2 (March)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622869
Equilibrium determination Interest rate policy Money supply Public debt Sovereign default;
Other versions of this item:
- Andreas Schabert, 2009. "Monetary Policy under a Fiscal Theory of Sovereign Default," Tinbergen Institute Discussion Papers 09-093/2, Tinbergen Institute.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Benhabib, Jess & Eusepi, Stefano, 2005.
"The design of monetary and fiscal policy: A global perspective,"
Journal of Economic Theory,
Elsevier, vol. 123(1), pages 40-73, July.
- Jess Benhabib & Stefano Eusepi, 2005. "The design of monetary and fiscal policy: a global perspective," Proceedings, Federal Reserve Bank of San Francisco.
- Stefano Eusepi & Jess Benhabib, 2005. "The Design of Monetary and Fiscal Policy: A Global Perspective," 2005 Meeting Papers 926, Society for Economic Dynamics.
- Stefano Eusepi & Jess Benhabib, 2005. "The Design of Monetary and Fiscal Policy: A Global Perspective," Computing in Economics and Finance 2005 388, Society for Computational Economics.
- Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 1999.
"Monetary Policy and Multiple Equilibria,"
Departmental Working Papers
199914, Rutgers University, Department of Economics.
- Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 1999. "Monetary Policy and Multiple Equilibria," CEPR Discussion Papers 2316, C.E.P.R. Discussion Papers.
- Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 1998. "Monetary policy and multiple equilibria," Finance and Economics Discussion Series 1998-29, Board of Governors of the Federal Reserve System (U.S.).
- Benhabib, J. & Schmitt-Grohe, S. & Uribe, M., 1998. "Monetary Policy and Multiple Equilibria," Working Papers 98-02, C.V. Starr Center for Applied Economics, New York University.
- Schabert, Andreas & von Thadden, Leopold, 2006.
"Distortionary taxation, debt, and the price level,"
Working Paper Series
0577, European Central Bank.
- Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
- Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
- Dirk Niepelt, 2004.
"The Fiscal Myth of the Price Level,"
The Quarterly Journal of Economics,
MIT Press, vol. 119(1), pages 276-299, February.
- Arellano, Cristina, 2008.
"Default risk and income fluctuations in emerging economies,"
7867, University Library of Munich, Germany.
- Cristina Arellano, 2008. "Default Risk and Income Fluctuations in Emerging Economies," American Economic Review, American Economic Association, vol. 98(3), pages 690-712, June.
- Uribe, Martin, 2006.
"A fiscal theory of sovereign risk,"
Journal of Monetary Economics,
Elsevier, vol. 53(8), pages 1857-1875, November.
- Michener, Ronald & Ravikumar, B., 1998. "Chaotic dynamics in a cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1117-1137, May.
- Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer, vol. 4(3), pages 381-99.
- Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
- Eric M. Leeper & Todd B. Walker, 2011.
"Fiscal Limits in Advanced Economies,"
The Economic Society of Australia, vol. 30(1), pages 33-47, 03.
- Falko Juessen & Ludger Linnemann & Andreas Schabert, 2009. "Default Risk Premia on Government Bonds in a Quantitative Macroeconomic Model," Tinbergen Institute Discussion Papers 09-102/2, Tinbergen Institute.
- Schabert, Andreas, 2011.
"Exchange rate policy under sovereign default risk,"
Elsevier, vol. 112(2), pages 179-181, August.
- Roland Döhrn & György Barabas & Heinz Gebhardt & Tobias Kitlinski & Martin Micheli & Torsten Schmidt & Simeon Vosen & Lina Zwick, 2012. "Die wirtschaftliche Entwicklung im Inland: Gedämpfte Expansion bei hohen Risiken," RWI Konjunkturbericht, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 57, 09.
- Betty Daniel & Christos Shiamptanis, 2008.
"Fiscal Risk in a Monetary Union,"
08-12, University at Albany, SUNY, Department of Economics.
- Eric M. Leeper & Todd B. Walker, 2012.
"Perceptions and Misperceptions of Fiscal Inflation,"
in: Fiscal Policy after the Financial Crisis, pages 255-299
National Bureau of Economic Research, Inc.
- Eric M. Leeper & Todd B. Walker, 2011. "Perceptions and misperceptions of fiscal inflation," BIS Working Papers 364, Bank for International Settlements.
- Eric M. Leeper & Todd B. Walker, 2012. "Perceptions and Misperceptions of Fiscal Inflation," NBER Working Papers 17903, National Bureau of Economic Research, Inc.
- Andreas Schabert, 2011. "Exchange Rate Policy under Sovereign Default Risk," Tinbergen Institute Discussion Papers 11-027/2, Tinbergen Institute.
- Christos Shiamptanis, 2012. "Risk Assessment Under a Non-linear Fiscal Rule," Working Papers 038, Ryerson University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If references are entirely missing, you can add them using this form.