Using inflation to erode the US public debt
AbstractProjections indicate the US Federal debt held by the public may exceed 70–100% of GDP within 10years. In many respects, the temptation to inflate away some of this debt burden is similar to that at the end of World War II. In 1946, the debt ratio was 108.6%. Inflation reduced this ratio by more than a third within a decade. Yet there are some important differences – shorter debt maturities today reduce the temptation to inflate, while the larger share of debt held by foreigners increases it. This paper lays out an analytical framework for determining the impact of a large nominal debt overhang on the temptation to inflate. It suggests that when economic growth is stalled, the US debt overhang may induce an increase in inflation of about 5% for several years that could significantly reduce the debt ratio.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 33 (2011)
Issue (Month): 4 ()
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Web page: http://www.elsevier.com/locate/inca/622617
Inflation; Public debt; Debt overhang; Debt maturity;
Other versions of this item:
- Aizenman, Joshua & Marion, Nancy, 2009. "Using Inflation to Erode the U.S. Public Debt," Santa Cruz Department of Economics, Working Paper Series qt6xf174rs, Department of Economics, UC Santa Cruz.
- Joshua Aizenman & Nancy Marion, 2009. "Using Inflation to Erode the U.S. Public Debt," NBER Working Papers 15562, National Bureau of Economic Research, Inc.
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- H6 - Public Economics - - National Budget, Deficit, and Debt
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
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by firstname.lastname@example.org (Le Captain') in Captain Economics on 2012-05-08 11:13:42
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by ? in D'un champ l'autre on 2014-06-14 17:29:00
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