A Model of Currency Depreciation and the Debt-Inflation Spiral
AbstractThis paper shows how a government that cannot make credible policy commitments might manage its exchange rate and fiscal stance in a world of rational expectations. The dynamic-game model developed here potentially can generate diverse patterns of macroeconomic behaviour, patterns that differ as a result of assumed differences in government objectives. Under some types of government, the ongoing strategic interaction between the public and private sectors leads to a disinflationary outcome. Other governments may push the economy into a spiral of rising debt and inflation.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 431.
Date of creation: Jul 1990
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- Obstfeld, Maurice, 1991. "A model of currency depreciation and the debt-inflation spiral," Journal of Economic Dynamics and Control, Elsevier, vol. 15(1), pages 151-177.
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