Fiscal Hedging with Nominal Assets
AbstractWe analyze optimal fiscal and monetary policy in an economy with distortionary labor income taxes, nominal rigidities and nominal debt of various maturities. Optimal policy prescribes the exclusive use of long term debt. Such debt mitigates the distortions associated with hedging fiscal shocks by allowing the government to allocate them efficiently across states and periods.
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Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2006-E35.
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