Public Debt, Money Supply, and Inflation: A Cross-Country Study and its Application to Jamaica
This paper provides comprehensive empirical evidence that supports the predictions of Sargent and Wallace''s (1981) ""unpleasant monetarist arithmetic"" that an increase in public debt is typically inflationary in countries with large public debt. Drawing on an extensiv...
Gespeichert in:
| 1. Verfasser: | |
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| Format: | Elektronisch E-Book |
| Sprache: | English |
| Veröffentlicht: |
Washington, D.C
International Monetary Fund
2006
|
| Schriftenreihe: | IMF Working Papers
Working Paper No. 06/121 |
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| Zusammenfassung: | This paper provides comprehensive empirical evidence that supports the predictions of Sargent and Wallace''s (1981) ""unpleasant monetarist arithmetic"" that an increase in public debt is typically inflationary in countries with large public debt. Drawing on an extensive panel dataset, we find that the relationship holds strongly in indebted developing countries, weakly in other developing countries, but generally not in developed economies. These results are robust to the inclusion of other variables, corrections for endogeneity biases, and relaxation of common-slope restrictions and are invariant over sub-sample periods. We estimate a VAR to trace out the transmission channel and find the impulse responses consistent with the predictions of a forward-looking model of inflation. Wealth effects of public debt could also affect inflation, as posited by the fiscal theory of the price level, but we do not find supportive evidence. The results suggest that the risk of a debt-inflation trap is significant in highly indebted countries, and pure money-based stabilization is unlikely to be effective over the medium term. Our findings stress the importance of institutional and structural factors in the link between fiscal policy and inflation |
| Beschreibung: | 1 Online-Ressource (39 p) |
| ISBN: | 1451863810 9781451863819 |
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| index_date | 2024-07-03T20:13:23Z |
| indexdate | 2024-07-10T09:35:32Z |
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| series2 | IMF Working Papers |
| spelling | Kwon, Goohoon Verfasser aut Public Debt, Money Supply, and Inflation A Cross-Country Study and its Application to Jamaica Kwon, Goohoon Washington, D.C International Monetary Fund 2006 1 Online-Ressource (39 p) txt rdacontent c rdamedia cr rdacarrier IMF Working Papers Working Paper No. 06/121 This paper provides comprehensive empirical evidence that supports the predictions of Sargent and Wallace''s (1981) ""unpleasant monetarist arithmetic"" that an increase in public debt is typically inflationary in countries with large public debt. Drawing on an extensive panel dataset, we find that the relationship holds strongly in indebted developing countries, weakly in other developing countries, but generally not in developed economies. These results are robust to the inclusion of other variables, corrections for endogeneity biases, and relaxation of common-slope restrictions and are invariant over sub-sample periods. We estimate a VAR to trace out the transmission channel and find the impulse responses consistent with the predictions of a forward-looking model of inflation. Wealth effects of public debt could also affect inflation, as posited by the fiscal theory of the price level, but we do not find supportive evidence. The results suggest that the risk of a debt-inflation trap is significant in highly indebted countries, and pure money-based stabilization is unlikely to be effective over the medium term. Our findings stress the importance of institutional and structural factors in the link between fiscal policy and inflation Online-Ausg McFarlane, Lavern Sonstige oth Robinson, Wayne Sonstige oth http://elibrary.imf.org/view/IMF001/05481-9781451863819/05481-9781451863819/05481-9781451863819.xml Verlag URL des Erstveröffentlichers Volltext |
| spellingShingle | Kwon, Goohoon Public Debt, Money Supply, and Inflation A Cross-Country Study and its Application to Jamaica |
| title | Public Debt, Money Supply, and Inflation A Cross-Country Study and its Application to Jamaica |
| title_auth | Public Debt, Money Supply, and Inflation A Cross-Country Study and its Application to Jamaica |
| title_exact_search | Public Debt, Money Supply, and Inflation A Cross-Country Study and its Application to Jamaica |
| title_exact_search_txtP | Public Debt, Money Supply, and Inflation A Cross-Country Study and its Application to Jamaica |
| title_full | Public Debt, Money Supply, and Inflation A Cross-Country Study and its Application to Jamaica Kwon, Goohoon |
| title_fullStr | Public Debt, Money Supply, and Inflation A Cross-Country Study and its Application to Jamaica Kwon, Goohoon |
| title_full_unstemmed | Public Debt, Money Supply, and Inflation A Cross-Country Study and its Application to Jamaica Kwon, Goohoon |
| title_short | Public Debt, Money Supply, and Inflation |
| title_sort | public debt money supply and inflation a cross country study and its application to jamaica |
| title_sub | A Cross-Country Study and its Application to Jamaica |
| url | http://elibrary.imf.org/view/IMF001/05481-9781451863819/05481-9781451863819/05481-9781451863819.xml |
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