Inflating Away the Public Debt? An Empirical Assessment
We propose and implement a method that provides quantitative estimates of the extent to which higher-than-expected infl ation can lower the real value of outstand- ing government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for infl ation at differ- ent horizons. The estimates suggest that it is unlikely that infl ation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead in flation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.
|Date of creation:||Jul 2014|
|Contact details of provider:|| Postal: MS032, P.O. Box 9110, Waltham, MA 02454-9110|
Web page: http://www.brandeis.edu/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Elisa Faraglia & Albert Marcet & Rigas Oikonomou & Andrew Scott, 2013.
"The Impact of Debt Levels and Debt Maturity on Inflation,"
Royal Economic Society, vol. 0, pages 164-192, 02.
- Faraglia, Elisa & Marcet, Albert & Oikonomou, Rigas & Scott, Andrew, 2012. "The Impact of Debt Levels and Debt Maturity on Inflation," CEPR Discussion Papers 9257, C.E.P.R. Discussion Papers.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, number 8973, March.
- Reinhart, Carmen, 2009. "The Second Great Contraction," MPRA Paper 21485, University Library of Munich, Germany.
- Carmen M. Reinhart & M. Belen Sbrancia1, 2015. "The liquidation of government debt," Economic Policy, CEPR;CES;MSH, vol. 30(82), pages 291-333.
- Carmen M. Reinhart & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," BIS Working Papers 363, Bank for International Settlements.
- Carmen M. Reinhart & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," NBER Working Papers 16893, National Bureau of Economic Research, Inc.
- Carmen Reinhart & M. Belen Sbrancia, 2015. "The Liquidation of Government Debt," IMF Working Papers 15/7, International Monetary Fund.
- Carmen M. & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," Working Paper Series WP11-10, Peterson Institute for International Economics.
- Antje Berndt & Hanno Lustig & Şevin Yeltekin, 2012. "How Does the US Government Finance Fiscal Shocks?," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 69-104, January.
- Antje Berndt & Hanno Lustig & Sevin Yeltekin, "undated". "How does the U.S. government finance fiscal shocks?," GSIA Working Papers 2006-E70, Carnegie Mellon University, Tepper School of Business.
- Antje Berndt & Hanno Lustig & Sevin Yeltekin, 2010. "How Does the U.S. Government Finance Fiscal Shocks?," NBER Working Papers 16458, National Bureau of Economic Research, Inc.
- Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-651, October.
- Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
- Eric M. Leeper & Xuan Zhou, 2013. "Inflation's Role in Optimal Monetary-Fiscal Policy," NBER Working Papers 19686, National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
- Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, vol. 95(1), pages 425-436, March.
- Matthias Doepke & Martin Schneider, 2006. "Inflation and the Redistribution of Nominal Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1069-1097, December.
- Refet S. Gürkaynak & Brian Sack & Jonathan H. Wright, 2010. "The TIPS Yield Curve and Inflation Compensation," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 70-92, January.
- Refet S. Gürkaynak & Brian P. Sack & Jonathan H. Wright, 2008. "The TIPS yield curve and inflation compensation," Finance and Economics Discussion Series 2008-05, Board of Governors of the Federal Reserve System (U.S.).
- Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
- Kitsul, Yuriy & Wright, Jonathan H., 2013. "The economics of options-implied inflation probability density functions," Journal of Financial Economics, Elsevier, vol. 110(3), pages 696-711.
- Campa, Jose M. & Chang, P. H. Kevin & Reider, Robert L., 1998. "Implied exchange rate distributions: evidence from OTC option markets1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 117-160, February.
- Bhupinder Bahra, 1997. "Implied risk-neutral probability density functions from option prices: theory and application," Bank of England working papers 66, Bank of England.
- Fisher, Lawrence & Weil, Roman L, 1971. "Coping with the Risk of Interest-Rate Fluctuations: Returns to Bondholders from Naive and Optimal Strategies," The Journal of Business, University of Chicago Press, vol. 44(4), pages 408-431, October.
- Cochrane, John H., 2011. "Understanding policy in the great recession: Some unpleasant fiscal arithmetic," European Economic Review, Elsevier, vol. 55(1), pages 2-30, January.
- John H. Cochrane, 2010. "Understanding Policy in the Great Recession: Some Unpleasant Fiscal Arithmetic," NBER Working Papers 16087, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:brd:wpaper:74. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Leslie Yancich)
If references are entirely missing, you can add them using this form.