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Reputation in a Model with a Limited Debt Structure

Author

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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)

Suggested Citation

  • Begona Dominguez Manzano, 2005. "Reputation in a Model with a Limited Debt Structure," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 600-622, July.
  • Handle: RePEc:red:issued:v:8:y:2005:i:3:p:600-622
    DOI: 10.1016/j.red.2005.01.007
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    References listed on IDEAS

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    1. Missale, Alessandro & Giavazzi, Francesco & Benigno, Pierpaolo, 2002. " How Is the Debt Managed? Learning from Fiscal Stabilizations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 443-469, September.
    2. Rogers, Carol Ann, 1989. " Debt Restructuring with a Public Good," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(1), pages 117-130.
    3. Missale, Alessandro & Blanchard, Olivier Jean, 1994. "The Debt Burden and Debt Maturity," American Economic Review, American Economic Association, vol. 84(1), pages 309-319, March.
    4. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
    5. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    6. Christopher Phelan & Ennio Stacchetti, 2001. "Sequential Equilibria in a Ramsey Tax Model," Econometrica, Econometric Society, vol. 69(6), pages 1491-1518, November.
    7. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    8. Harold L. Cole & Timothy J. Kehoe, 2000. "Self-Fulfilling Debt Crises," Review of Economic Studies, Oxford University Press, vol. 67(1), pages 91-116.
    9. 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, March.
    10. George-Marios Angeletos, 2002. "Fiscal Policy with Noncontingent Debt and the Optimal Maturity Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1105-1131.
    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 171-181, May.
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    Citations

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    Cited by:

    1. Grechyna, Daryna, 2016. "Debt And Deficit Fluctuations In A Time-Consistent Setup," Macroeconomic Dynamics, Cambridge University Press, vol. 20(07), pages 1771-1794, October.
    2. Dominguez, Begona, 2007. "On the time-consistency of optimal capital taxes," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 686-705, April.

    More about this item

    Keywords

    Debt Management; Optimal Taxation; Time-Consistency;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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