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31 mars 2021
- handle: 10670/1.mjn6lf
- hal: hal-03186917
info:eu-repo/semantics/OpenAccess
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Public debt Sovereign debt National debts Government debts Debts, Government Public debtsCiter ce document
Georges Marios Angeletos et al., « Public Debt as Private Liquidity: Optimal Policy », HAL-SHS : économie et finance, ID : 10670/1.mjn6lf
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We study optimal policy in an economy in which public debt is used as collateral or liquidity buffer. Issuing more public debt raises welfare by easing the underlying financial friction; but this easing lowers the liquidity premium and increases the government’s cost of borrowing. These considerations, which are absent in the basic Ramsey paradigm, help pin down a unique, long-run level of public debt. They require a front-loaded tax response to government-spending shocks, instead of tax smoothing. And they explain why a financial recession, more than a traditional one, makes government borrowing cheaper, optimally supporting larger fiscal stimuli.