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Reputation in a Model with a Limited Debt Structure

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  • Begona Dominguez Manzano

    (University of Auckland)

Abstract

This paper studies the optimal management of the maturity of government debt in an economy without commitment. We consider a reputation where any deviation triggers reversion to the worst sustainable equilibrium. We obtain two results. First, contrary to earlier literature, we show that a very rich debt structure is not a necessary condition to solve the time-inconsistency problem. Second, we learn how to allocate the outstanding debt into short and long-term bonds to enhance the credibility of the government policy. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2005.01.007
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 3 (July)
Pages: 600-622

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Handle: RePEc:red:issued:v:8:y:2005:i:3:p:600-622

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Related research

Keywords: Debt Management; Optimal Taxation; Time-Consistency;

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References

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  1. Christopher Phelan & Ennio Stacchetti, 2001. "Sequential Equilibria in a Ramsey Tax Model," Econometrica, Econometric Society, Econometric Society, vol. 69(6), pages 1491-1518, November.
  2. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Cole, Harold L & Kehoe, Timothy J, 2000. "Self-Fulfilling Debt Crises," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(1), pages 91-116, January.
  4. Missale, Alessandro & Giavazzi, Francesco & Benigno, Pierpaolo, 2002. " How Is the Debt Managed? Learning from Fiscal Stabilizations," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 104(3), pages 443-69, September.
  5. Alessandro Missale & Olivier Jean Blanchard, 1991. "The Debt Burden and Debt Maturity," NBER Working Papers 3944, National Bureau of Economic Research, Inc.
  6. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  7. Jeremy Bulow & Kenneth Rogoff, 1998. "Sovereign Debt: Is to Forgive to Forget," Levine's Working Paper Archive 209, David K. Levine.
  8. Faig, Miquel, 1994. "Debt Restructuring and the Time Consistency of Optimal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 26(2), pages 171-81, May.
  9. Pablo Andres Neumeyer & Fernando Alvarez & Pat Kehoe, 2003. "The Time Consistency of Optimal Monetary and Fiscal Policies," Department of Economics Working Papers, Universidad Torcuato Di Tella 005, Universidad Torcuato Di Tella.
  10. Rogers, Carol Ann, 1989. " Debt Restructuring with a Public Good," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 91(1), pages 117-30.
  11. George-Marios Angeletos, 2002. "Fiscal Policy With Noncontingent Debt And The Optimal Maturity Structure," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(3), pages 1105-1131, August.
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Cited by:
  1. Dominguez, Begona, 2007. "On the time-consistency of optimal capital taxes," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(3), pages 686-705, April.

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