This note characterises the evolution of Chile’s public debt, and discusses its implications for the management of the country’s monetary policy. Historically, the main issuer of public debt in Chile was the central bank. The government, in turn, has recently started to engage in a more active debt policy, with the aim of deepening the market for risk-free securities and diversifying its fundin...

In a simple stochastic overlapping generation model, individuals work when young and retire when old, generations’ productivity is affected by a serially uncorrelated random shock, and fiat money and nominal public debt are the only storable assets. In this setting, we show that social security programs featured by a constant contribution rate and budget-balance in each period, as common in the...

We use a dynamic game model of a two-country monetary union to study the impacts of an exogenous fall in aggregate demand, the resulting increase in public debt, and the consequences of a sovereign debt haircut for a member country or bloc of the union. In this union, the governments of participating countries pursue national goals when deciding on fiscal policies, whereas the common central ba...

How did the crisis impact financial intermediation? We address this question by studying a unique market segment, viz. foreign private debt issued in the U.S, which grew in size despite the financial crisis. Specifically foreign private (or Rule 144A) debt issued in U.S. registered over a five-fold increase compared to public (or Yankee) debt between pre-crisis and crisis periods, while at the ...

This paper contributes to the literature by empirically examining whether the influence of public debt on economic growth differs between the short and the long run and presents different patterns across euro-area countries. To this end, we use annual data from both central and peripheral countries of the European Economic and Monetary Union (EMU) for the 1960-2012 period and estimate a growth ...

This paper studies the determinacy properties of monetary and fiscal policy rules in a small-scale New Keynesian model. We modify the standard model in two ways. First, we allow positive public debt in the steady state as in Leeper [Journal of Monetary Economics 27, 129–147 (1991)]. Second, we add rule-of-thumb consumers as in Bilbiie [Journal of Economic Theory 140, 162–196 (2008)]. Leeper stu...

This paper presents and analyzes an endogenous growth model with public capital and progressive taxation. Two versions are considered: The first versions assumes that the budget of the government is balanced at each point of time. The second allows for public debt but asserts that the ratio of the primary surplus to gross domestic income is a positive linear function of the debt income ratio wh...

This paper shows that optimal fiscal and monetary policy is generally time consistent in a standard small open economy. Further, there exist many maturity structures of public debt capable of rendering the optimal policy time consistent. This result is in sharp contrast with that obtained by others in the context of closedeconomy models. In the closed economy, the time consistency of optimal mo...

We examine a company’s decision to issue public debt for the first time by analyzing its behavior around the time of obtaining its first debt rating. Contrary to our expectations, we find that firms are more likely to pay dividends in the years prior to the initial rating rather than at or after the announcement date, and that the amount of dividend payments actually appears to decline (rather ...

We analyze effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy violates the inter-temporal government budget constraint along a balanced growth path. A balanced government budget gives a unique saddle point stable growth path. With a rule based policy, two saddle point stable balanced growth paths can occur, depen...