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Debt Policy under Fixed and Flexible Prices

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  • Rankin, N

Abstract

The effects of an increase in the stock of government bonds are considered in an economy wit h overlapping generations and perfect foresight, and in the absence of intergene rational bequests. The cases where prices adjust instantaneously to clear market s and whereprices are exogenously fixed, are contrasted (1) in a model with cap ital accumulation but an exogenous labor supply and (2) in a model with exogenou s capital but endogenous labor supply. James Tobin's intuitive argument that, in the absence of bequests, higher debt reduces long-run welfare if prices are fle xible, but increases it iffixed, so producing Keynesian unemployment, is correc t for (1) but incorrect for (2) at high levels of employment. Copyright 1986 by Royal Economic Society.

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  • Rankin, N, 1986. "Debt Policy under Fixed and Flexible Prices," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 481-500, November.
    • Handle: RePEc:oup:oxecpp:v:38:y:1986:i:3:p:481-500
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    Cited by:

    1. Torben Andersen & Joydeep Bhattacharya, 2020. "Intergenerational Debt Dynamics Without Tears," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 192-219, January.
    2. Rankin, Neil & Scalera, Domenico, 1995. "Death and the Keynesian multiplier," Ricerche Economiche, Elsevier, vol. 49(1), pages 75-87, March.
    3. Tanaka Yasuhito, 2020. "A Keynesian Approach to Fiscal Policy for Full Employment and Continuous Time Debt Dynamics," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 65(1), pages 20-38, April.
    4. Yiannis Stournaras, 2005. "Aggregate Supply and Demand, the Real Exchange Rate and Oil Price Denomination," Working Papers 26, Bank of Greece.
    5. Takayuki Ogawa, 2004. "Welfare Analysis of Debt Policy during Recessions," Discussion Papers in Economics and Business 04-14, Osaka University, Graduate School of Economics.
    6. Farmer Karl & Kuplen Stefan, 2018. "Involuntary Unemployment in a Neoclassical Growth Model with Public Debt and Human Capital," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(2), pages 3-34, August.
    7. Takayuki Ogawa, 2005. "Welfare Analysis of Debt Policy during Recessions," ISER Discussion Paper 0642, Institute of Social and Economic Research, Osaka University.

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