Nominal versus indexed debt
a quantitative horse race
Rev. ed.
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Author
Contributions
- Kanczuk, Fabio, 1969- - Contributor
- Harvard Business School. Division of Research - Contributor
Publication
2005 - Harvard Business School, Boston, Massachusetts
Language
English
Word Count
7,750 words, Guess
Page Count
31 pages
Identifiers
- OCLC Control Number589198914
- Open LibraryOL45255223M
Description
The main arguments in favor and against nominal and indexed debt are the incentive to default through inflation versus hedging against unforeseen shocks. We model and calibrate these arguments to assess their quantitative importance. We use a dynamic equilibrium model with tax distortion, government outlays uncertainty, and contingent-debt service. Our framework also recognizes that contingent debt can be associated with incentive problems and lack of commitment. Thus, the benefits of unexpected inflation are tempered by higher interest rates. We obtain that costs from inflation more than offset the benefits from reducing tax distortions. We further discuss sustainability of nominal debt in developing (volatile) countries.
Subjects
Series Statement
- Working paper / Harvard Business School -- 05-053
- Working paper (Harvard Business School. Division of Research) -- 05-053.
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