Title: Public Debt and Inflation: the Role of Inflation‐Sensitive Instruments
Abstract: This paper examines the effect of inflation on the choice of government debt structure. We develop work by Missale and Blanchard ( American Economic Review , Vol. 84 (1994), No. 1, pp. 309–319) to allow for the joint determination of inflation and the share of inflation‐sensitive securities. We assume that governments prefer domestic nominal long‐term debt. We show that the subgame perfect equilibrium involves a negative relation between inflationary expectations and the share of such debt. Panel data estimation for 15 OECD countries provides strong support for the theory.
Publication Year: 2001
Publication Date: 2001-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 9
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