{"title":"The monetary financing of a large fiscal shock","authors":"Pedro Teles , Oreste Tristani","doi":"10.1016/j.jmoneco.2024.103630","DOIUrl":null,"url":null,"abstract":"<div><p>Motivated by the surge in debt levels through the pandemic crisis, we revisit the issue of the optimal financing of public debt. In contrast to existing results, we find that the optimal response of inflation to a large increase in public spending is a gradual, significant and long-lasting rise in inflation. Our conclusion is due to a different assumption on the source of nominal rigidities. While the literature has focused on sticky prices, of either the Calvo (1983) or Rotemberg (1982) type, we consider sticky plans as in the sticky information set up of Mankiw and Reis (2002). A crucial feature of our results is that a significant inflation response is desirable if the maturity of public debt is (realistically) long.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":"147 ","pages":"Article 103630"},"PeriodicalIF":4.3000,"publicationDate":"2024-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0304393224000837/pdfft?md5=3c09b6e0c5d118e98068e9f6c6bd59cc&pid=1-s2.0-S0304393224000837-main.pdf","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Monetary Economics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0304393224000837","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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Abstract
Motivated by the surge in debt levels through the pandemic crisis, we revisit the issue of the optimal financing of public debt. In contrast to existing results, we find that the optimal response of inflation to a large increase in public spending is a gradual, significant and long-lasting rise in inflation. Our conclusion is due to a different assumption on the source of nominal rigidities. While the literature has focused on sticky prices, of either the Calvo (1983) or Rotemberg (1982) type, we consider sticky plans as in the sticky information set up of Mankiw and Reis (2002). A crucial feature of our results is that a significant inflation response is desirable if the maturity of public debt is (realistically) long.
期刊介绍：
The profession has witnessed over the past twenty years a remarkable expansion of research activities bearing on problems in the broader field of monetary economics. The strong interest in monetary analysis has been increasingly matched in recent years by the growing attention to the working and structure of financial institutions. The role of various institutional arrangements, the consequences of specific changes in banking structure and the welfare aspects of structural policies have attracted an increasing interest in the profession. There has also been a growing attention to the operation of credit markets and to various aspects in the behavior of rates of return on assets. The Journal of Monetary Economics provides a specialized forum for the publication of this research.
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