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Nominal versus indexed debt : a quantitative horse race / Laura Alfaro, Fabio Kanczuk

Author
Alfaro, Laura
Published
Cambridge, Mass. : National Bureau of Economic Research, [2007]
Copyright Date
©2007
Physical Description
30 pages : illustrations ; 22 cm.
Additional Creators
Kanczuk, Fabio, 1969- and National Bureau of Economic Research
Online Version

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Summary
The main arguments in favor and against nominal and indexed debt are the incentive to default through inflation versus hedging against unforeseen shocks. We model and calibrate these arguments to assess their quantitative importance. We use a dynamic equilibrium model with tax distortion, government outlays uncertainty, and contingent-debt service. Our framework also recognizes that contingent debt can be associated with incentive problems and lack of commitment. Thus, the benefits of unexpected inflation are tempered by higher interest rates. We obtain that costs from inflation more than offset the benefits from reducing tax distortions. We further discuss sustainability of nominal debt in developing (volatile) countries.
Subject(s)
Note
"May 2007."
Bibliography Note
Includes bibliographical references (pages 23-25).
Other Forms
Also available in PDF from the NBER world wide web site (www.nber.org).
View MARC record | catkey: 3865162