Abstract
Conventional monetary policy involves actions by the monetary and fiscal authorities: the former sets a nominal interest rate and the latter sets lump-sum taxes to finance the implied flow of interest payments on government debt. We model such policy within an overlapping generations framework and show that absent any other frictions the magnitude of the nominal interest rate gives rise to asset substitution between government debt and either private debt or capital-substitution that has both real and nominal effects. Such substitution is not in standard New Keynesian models because their dynastic specification implies that government debt is not net wealth.
| Original language | English |
|---|---|
| Pages (from-to) | 875-892 |
| Number of pages | 18 |
| Journal | International Economic Review |
| Volume | 64 |
| Issue number | 3 |
| Online published | 12 Dec 2022 |
| DOIs | |
| Publication status | Published - Aug 2023 |
Bibliographical note
Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).Research Keywords
- DEBT
