Title |
Public Debt Indexation and Denomination with an Independent Central Bank |
|---|---|
Abstract |
This paper examines the interaction between public debt management and the design of monetary institutions. The analysis shows that delegation of monetary policy to an independent central bank is more effective in containing inflationary expectations than the use of foreign currency or inflation-indexed debt. If delegation of monetary policy is viable, the optimal policy is to issue conventional debt. This increases the sensitivity of taxes and output to unexpected inflation, thus minimizing the inflation needed to offset supply shocks. Evidence on central bank independence, debt composition and output variability suggests that the normative argument has some positive content. Published in: European Economic Review, volume 46, Issue 10, december 2002, pages 1825-1850. |
Author(s) |
Falcetti Elisabetta - London School of Economics, Houghton Street, London WC2A 2AE, UK Missale Alessandro - University of Milan, Department of Economics, Business and Statistics, alessandro.missale@unimi.it |
Language |
English |
Series |
IGIER Working Paper |
Date of Publication |
2000 |
No./Date |
n.169 |
URL |
ftp://ftp.igier.uni-bocconi.it[..] |
Number of pages |
28 |
Description URL |
http://ideas.repec.org/p/igi/i[..] |
Table of contents |
1. Introduction 2. Debt composition: evidence from OECD countries 3. The government problem 4. A dependent Central Bank 4.1. The social loss function: an assessment 5. An independent Central Bank 5.1. A weight-conservative central bunker 5.2. An inflation contract 5.3. Inflation targeting 6. Independence and debt structure: the evidence 7. Conclusions References |
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