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The role of public debt in the game of double chicken

  • Beetsma Roel M.W.J.
  • Bovenberg A. Lans

    (METEOR)

This paper explores how debt accumulation is affected by the strategic interactions between monetary and fiscal authorities. To achieve the second best with a dependent central bank, the government needs to be made both more conservative and more impatient. However, in the absence of political distortions, an optimally designed conservative, independent central bank is sufficient to establish the second best. In the presence of political distortions, however, also an optimal debt target is needed. Keywords: Central bank independence, price stability weights, (optimal) debt targets, strategic debt management, political distortions, optimal preferences.

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File URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:f24b550f-735e-4581-929e-c6634ccd5d6c/datastreams/ASSET1/content
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Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 025.

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Date of creation: 1995
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Handle: RePEc:unm:umamet:1995025
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  1. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
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  5. repec:fth:harver:1461 is not listed on IDEAS
  6. Mankiw, N. Gregory, 1987. "The optimal collection of seigniorage : Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 327-341, September.
  7. Levine, Paul L & Pearlman, Joseph, 1992. "Fiscal and Monetary Policy Under EMU: Credible Inflation Targets or Unpleasant Monetary Arithmetic?," CEPR Discussion Papers 701, C.E.P.R. Discussion Papers.
  8. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  9. Beetsma, Roel M. W. J. & Lans Bovenberg, A., 1997. "Designing fiscal and monetary institutions in a second-best world," European Journal of Political Economy, Elsevier, vol. 13(1), pages 53-79, February.
  10. Obstfeld, Maurice, 1997. "Dynamic Seigniorage Theory: An Exploration," Department of Economics, Working Paper Series qt712610vq, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  13. Thomas Krichel & Paul Levine & Joseph Pearlman, 1994. "Fiscal and Monetary Policy in a Monetary Union: Credible Inflation Targets or Monetised Debt?," School of Economics Discussion Papers 9403, School of Economics, University of Surrey.
  14. Calvo, Guillermo A & Obstfeld, Maurice, 1990. "Time Consistency of Fiscal and Monetary Policy: A Comment," Econometrica, Econometric Society, vol. 58(5), pages 1245-47, September.
  15. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 195-225.
  16. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  17. Levine, Paul, 1993. "Fiscal Policy Co-ordination under EMU and the Choice of Monetary Instrument," The Manchester School of Economic & Social Studies, University of Manchester, vol. 61(0), pages 1-12, Suppl..
  18. Calvo, Guillermo A & Guidotti, Pablo E, 1992. "Optimal Maturity of Nominal Government Debt: An Infinite-Horizon Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 895-919, November.
  19. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
  20. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  21. 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.
  22. Aghion, P. & Bolton, P., 1990. "Government Domestic Debt And The Risk Of Default: A Political-Economic Model Of The Strategic Role Of Debt," DELTA Working Papers 90-11, DELTA (Ecole normale supérieure).
  23. Persson, Torsten & Svensson, Lars E. O., 1984. "Time-consistent fiscal policy and government cash-flow," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 365-374, November.
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