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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. Benigno, Pierpaolo & Giavazzi, Francesco & Missale, Alessandro, 2001. "How is the Debt Managed? Learning from Fiscal Stabilizations," CEPR Discussion Papers 2655, C.E.P.R. Discussion Papers.
  2. Fernando Alvarez & Patrick J. Kehoe & Pablo Andrés Neumeyer, 2004. "The Time Consistency of Optimal Monetary and Fiscal Policies," Econometrica, Econometric Society, vol. 72(2), pages 541-567, 03.
  3. Rogers, Carol Ann, 1989. " Debt Restructuring with a Public Good," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(1), pages 117-30.
  4. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  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 I. Bulow & Kenneth Rogoff, 1988. "Sovereign Debt: Is To Forgive To Forget?," NBER Working Papers 2623, National Bureau of Economic Research, Inc.
  8. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-fulfilling debt crises," Staff Report 211, Federal Reserve Bank of Minneapolis.
  9. George-Marios Angeletos, 2002. "Fiscal Policy With Noncontingent Debt And The Optimal Maturity Structure," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1105-1131, August.
  10. Christopher Phelan & Ennio Stacchetti, 1999. "Sequential equilibria in a Ramsey tax model," Staff Report 258, Federal Reserve Bank of Minneapolis.
  11. Faig, Miquel, 1994. "Debt Restructuring and the Time Consistency of Optimal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(2), pages 171-81, May.
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Cited by:
  1. Dominguez, Begona, 2007. "On the time-consistency of optimal capital taxes," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 686-705, April.

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