Sustainability, Debt Management, and Public Debt Policy in Japan
The purpose of this paper is to analyze sustainability issues of Japan%u2019s fiscal policy and then to discuss the debt management policy using the theoretical models and numerical studies. We also investigate the desirable coordination of fiscal and monetary authorities toward fiscal reconstruction. We include a potential possibilities of the government bonds in our theoretical model. The public bonds, therefore, cannot be sold when the issuance leads the amount of debt outstanding to be more than a certain level. In this respect, the fiscal authority has to take into account the upper limit of stocks of public debt. This possibility of debt default provides the fiscal authority to issue public bonds strategically in an earlier period. A strategic behavior of fiscal authority induces the monetary authority, in a later period, to boost output and raise seigniorage revenues to eliminate the distortion of resource allocation due to the limitation on debt issuance. Therefore, the monetary policy in a later period suffers from an inflation bias from the ax ante point of view. There are two ways to eliminate this distortion toward successful fiscal restoration. One of them is to make the monetary authority more conservative than society in the sense that the price stability weight of monetary authority is higher than that of society. The other way of eliminating the distortion of the resource allocation is to design an institutional ceiling on the debt issuance. The direct ceiling can provide a binding constraint of the public bond issuance for the fiscal authority of Japan because it has accumulated the debt outstanding much more than other countries.
|Date of creation:||Jul 2006|
|Date of revision:|
|Publication status:||published as Sustainability, Debt Management, and Public Debt Policy in Japan , Takero Doi, Toshihiro Ihori, Kiyoshi Mitsui. in Fiscal Policy and Management in East Asia, NBER-EASE, Volume 16 , Ito and Rose. 2007|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
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.:
- Robert J. Barro, 1995. "Optimal Debt Management," NBER Working Papers 5327, National Bureau of Economic Research, Inc.
- Persson, Mats & Persson, Torsten & Svenssor, Lars E. O., 2005.
"Time Consistency of Fiscal and Monetary Policy: A Solution,"
09-03-2005, Princeton University, Research Program in Political Economy.
- Mats Persson & Torsten Persson & Lars E. O. Svensson, 2006. "Time Consistency of Fiscal and Monetary Policy: A Solution," Econometrica, Econometric Society, vol. 74(1), pages 193-212, 01.
- Mats Persson & Torsten Persson & Lars E.O. Svensson, 2005. "Time Consistency of Fiscal and Monetary Policy: A Solution," NBER Working Papers 11088, National Bureau of Economic Research, Inc.
- Persson , Mats & Persson , Torsten & Svensson, Lars E.O., 2004. "Time Consistency of Fiscal and Monetary Policy: A Solution," Seminar Papers 734, Stockholm University, Institute for International Economic Studies.
- Persson, Mats & Persson, Torsten & Svensson, Lars E O, 2005. "Time Consistency of Fiscal and Monetary Policy: A Solution," CEPR Discussion Papers 4941, C.E.P.R. Discussion Papers.
- Persson, Mats & Persson, Torsten & Svensson, Lars E O, 1987. "Time Consistency of Fiscal and Monetary Policy," Econometrica, Econometric Society, vol. 55(6), pages 1419-31, November.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:12357. 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: ()
If references are entirely missing, you can add them using this form.