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Fiscal Hedging with Nominal Assets

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  • Hanno Lustig
  • Christopher Sleet
  • Sevin Yeltekin

Abstract

We analyze optimal fiscal and monetary policy in an economy with distortionary labor income taxes, nominal rigidities and nominal debt of various maturities. Optimal policy prescribes the exclusive use of long term debt. Such debt mitigates the distortions associated with hedging fiscal shocks by allowing the government to allocate them efficiently across states and periods.

Suggested Citation

  • Hanno Lustig & Christopher Sleet & Sevin Yeltekin, "undated". "Fiscal Hedging with Nominal Assets," GSIA Working Papers 2006-E35, Carnegie Mellon University, Tepper School of Business.
    • Handle: RePEc:cmu:gsiawp:1143224649
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    References listed on IDEAS

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