IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/18197.html
   My bibliography  Save this paper

Government Debt Management and Inflation with Real and Nominal Bonds

Author

Listed:
  • Schmid, Lukas
  • Valaitis, Vytautas
  • Villa, Alessandro

Abstract

Can governments use TIPS to tame inflation? We propose a novel framework of optimal debt management with sticky prices and a government that issues nominal and real state-uncontingent bonds. Nominal debt can be monetized giving ex-ante flexibility, whereas real bonds are cheaper but constitute a commitment ex-post. Under Full Commitment, the government chooses a leveraged portfolio of nominal liabilities and real assets to use inflation to smooth taxes. With No Commitment, it reduces borrowing costs ex-ante using real debt strategically to prevent future governments from monetizing debt ex-post. Such policies match U.S. data, with higher TIPS shares effectively curbing inflation.

Suggested Citation

  • Schmid, Lukas & Valaitis, Vytautas & Villa, Alessandro, 2023. "Government Debt Management and Inflation with Real and Nominal Bonds," CEPR Discussion Papers 18197, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18197
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP18197
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alex Clymo & Andrea Lanteri & Alessandro Villa, 2023. "Capital and Labor Taxes with Costly State Contingency," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 943-964, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.

      More about this item

      JEL classification:

      • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
      • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
      • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
      • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

      Statistics

      Access and download statistics

      Corrections

      All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:18197. See general information about how to correct material in RePEc.

      If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

      If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

      If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

      For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

      Please note that corrections may take a couple of weeks to filter through the various RePEc services.

      IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.