In standard models of monetary policy, public debt is assumed to have no role. Policy rate changes affect output and inflation through conventional channels, and any fiscal consequences of interest rate changes are assumed to be offset by corresponding adjustments in fiscal policy. However, with public debt high in many economies, this assumption may no longer be innocuous. Changes in monetary policy affect not only private borrowing costs but also government interest payments, the income earned by government bondholders and the market value of outstanding public debt […]