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Permanent Budget Deficits and Inflation

Abstract : The issue of whether permanent primary budget deficits have to be monetized is re-examined in a simple monetary model, hybrid of the Sidrauski and overlapping-generations frameworks, in which intergenerational effects are generated by the arrival of new infinitely-lived cohorts. The presence of intergenerational effects enlarges, for a given fiscal policy, the set of admissible monetary policies and weakens the need to monetize the deficit. Comparisons between the growth and interest rates are in general insufficient to predict whether increased deficit must be monetized, because of the existence of both bond and money seigniorage Laffer curves.
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Submitted on : Thursday, October 21, 2021 - 9:50:49 PM
Last modification on : Tuesday, January 25, 2022 - 3:18:03 PM

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  • HAL Id : hal-03393238, version 1
  • SCIENCESPO : 2441/8687

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Philippe Weil. Permanent Budget Deficits and Inflation. ICFAI Journal of Monetary Economics, 1987, 20 (2), pp.393 - 410. ⟨hal-03393238⟩

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