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The impact of debt levels and maturity on inflation

Journal

Economic Journal

Subject

Economics

Publishing details

Economic Journal 2013 Vol 123:566 p F164-F192

Authors / Editors

Faraglia E;Marcet A;Oikonomou R;Scott A

Biographies

Andrew J Scott

Publication Year

2013

Abstract

We examine the implications for optimal inflation of changes in the level and maturity of government debt under the assumption where fiscal and monetary policies co-ordinate, and in the case of an independent central bank following a Taylor rule. Under co-ordination, inflation persistence and volatility depend on the sign, size and maturity of debt. Higher debt leads to higher inflation and longer maturity leads to more persistent inflation although inflation plays a minor role in achieving fiscal sustainability. Under an independent monetary authority, inflation is higher, more volatile and more persistent and plays a significant role in achieving fiscal solvency.

Available on ECCH

No


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