Optimal management of indexed and nominal debt

Cover of: Optimal management of indexed and nominal debt | Barro, Robert J.

Published by National Bureau of Economic Research in Cambridge, MA .

Written in English

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Subjects:

  • Debts, Public -- Mathematical models.,
  • Taxation -- Mathematical models.

Edition Notes

Book details

StatementRobert J. Barro.
SeriesNBER working paper series -- working paper 6197, Working paper series (National Bureau of Economic Research) -- working paper no. 6197.
ContributionsNational Bureau of Economic Research.
The Physical Object
Pagination25 p. ;
Number of Pages25
ID Numbers
Open LibraryOL22404998M

Download Optimal management of indexed and nominal debt

"Optimal Management of Indexed and Nominal Debt," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.), Indexation, Inflation and Monetary Policy, edition 1, volume 2, chapter 5, pages Central Bank of by: OPTIMAL MANAGEMENT OF INDEXED AND NOMINAL DEBT 5 of G-contingent debt.

If taxes are successfully smoothed, then the rev-enue in each period is the same value, T. If there is a gap between the full outlay and revenue in period 1, then the difference must be financed by non-contingent debt issue (plus or minus) at the prices, P 1j, of non.

Get this from a library. Optimal management of indexed and nominal debt. [Robert J Barro; National Bureau of Economic Research.] -- Abstract: A tax-smoothing objective is used to assess the optimal consumption of public debt with respect to maturity and contingencies.

This objective motivates the government to make its debt. Optimal Management of Indexed and Nominal Optimal management of indexed and nominal debt book If one incorporates levies on a tax base, such as income, con-sumption, or property, then distortions are likely to increase more than in proportion with the amount of taxes when expressed in rela-tion to the tax base.

Therefore, Tt and Gt should be construed as ratios to the tax base. Downloadable. A tax-smoothing objective is used to assess the optimal composition of public debt with respect to maturity and contingencies.

This objective motivates the government to make its debt payouts contingent on the levels of public outlay and the tax base. If these contingencies are present, but asset prices of non-contingent indexed debt are stochastic, then full tax smoothing. Optimal Management of Indexed and Nominal Debt.

Robert Barro. Working Papers Central Bank of Chile from Central Bank of Chile. Abstract: A tax-smoothing objective is used to assess the optimal composition of public debt with respect to maturity and contingencies.

This objective motivates the government to make its debt payouts contingent on the levels of public outlay and the tax base. The bottom line is that an optimal-tax approach to public debt favors bonds that are indexed and long term.

Suggested Citation: Suggested Citation Barro, Robert J., Optimal Management of Indexed and Nominal Debt (September ). The fiscal authority also chooses its type of debt obligations. These decisions include the maturity structure of the debt, whether to issue nominal bonds or bonds indexed to either the price level or a foreign currency, whether debt payments should be contingent on other vari-ables such as government expenditures and the state of Optimal management of indexed and nominal debt book business.

"Optimal Management of Indexed and Nominal Debt," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.), Indexation, Inflation and Monetary Policy, edition 1, volume 2, chapter 5, pagesCentral Bank of Chile.

Optimal Management of Indexed and Nominal Debt. By Robert Barro. Abstract. A tax-smoothing objective is used to assess the optimal composition of public debt with respect to maturity and contingencies. This objective motivates the government to make its debt payouts contingent on the levels of public outlay and the tax base.

If these. Optimal Management of Indexed and Nominal Debt. Robert Barro. NoNBER Working Papers from National Bureau of Economic Research, Inc Abstract: A tax-smoothing objective is used to assess the optimal consumption of public debt with respect to maturity and contingencies.

This objective motivates the government to make its debt payout contingent on the levels of public outlay and the. Optimal Management of Indexed and Nominal Debt. By Robert Barro. Abstract. If these contingencies are present, but asset prices of non-contingent indexed debt are stochastic, then full tax smoothing dictates an optimal maturity structure of the non-contingent debt.

If the certaintyequivalent outlays are the same for each period, then the. Optimal Management of Indexed and Nominal Debt. By Robert J. Barro. Get PDF ( KB) Abstract. A tax-smoothing objective is used to assess the optimal consumption of public debt with respect to maturity and contingencies.

This objective motivates the government to make its debt payout contingent on the levels of public outlay and the tax base. direction under PT, because nominal debt is a better store of value than indexed debt. The one-year indexation lag is crucial in that, in the absence of any lag, full indexation is optimal under PT.

Before that, U.S. debt was all nominal debt. Brazil, in contrast, after introducing inflation-indexed securities inis now struggling to reduce the level of indexed-debt.

Inclose to 20% of the Brazilian debt was nominal (not indexed). What explains these differences. What are the criteria for choosing the optimal amount of nominal. This paper is connected to different strands of the literature. There is a substantial literature on optimal public debt management dating back to Lucas and Stokey () – see Alfaro and Kanczuk () for a non-technical review.

The choice between indexed and nominal debt is part of this optimization problem. We characterize the optimal sequential choice of monetary policy in economies with either nominal or indexed debt.

In a model where nominal debt is the only source of time inconsistency, the. But if moral-hazard explains the absence of contingent debt, then the same reasoning tends to make nominal debt issue undesirable.

The bottom line is that an optimal-tax approach to public debt favors bonds that are indexed and long term. c Peking University Press.

in which nominal variables – prices or wages, and sometimes both – were costly to adjust. The result, brought together brilliantly by Michael Woodford in his book, is a logical framework where economic welfare depends on the ability of a central bank to stabilise inflation using its short-term nominal.

An index-linked bond is a bond in which payment of income on the principal is related to a specific price index, usually the Consumer Price Index.

provides estimates of the optimal inflation rate for the U.S. economy. Based on a standard, modern macroeconomic model calibrated to U.S. data, the inflation rate that is optimal after accounting for the zero bound—but not necessarily all other relevant factors—is estimated to be to percent per year as measured by the PCE price index.

Get this from a library. Management of the Nominal Public Debt Theory and Applications. [Pablo Emilio Guidotti; Guillermo Calvo; International Monetary Fund.] -- Optimal management of the public debt is explored in a context where economic policy is continuously revised because, when the public debt is non--indexed, policy--makers are tempted to use inflation.

Structure. Daily inflation-indexed bonds pay a periodic coupon that is equal to the product of the principal and the nominal coupon rate. For some bonds, such as in the case of TIPS, the underlying principal of the bond changes, which results in a higher interest payment when multiplied by the same rate.

For example, if the annual coupon of the bond were 5% and the underlying principal of the. An inflation-indexed security is a security that guarantees a return higher than the rate of inflation if it is held to maturity.

Inflation-indexed securities link their capital appreciation, or. Indeed, optimal public debt management is even more complex than outlined above. Should debt be nominal or inflation-indexed.

This depends on the nature of the shocks facing the economy. When people hear “debt” they usually think of something to avoid — credit card bills and high interests rates, maybe even bankruptcy. But when you’re running a business, debt isn’t all bad.

Nominal Debt as a Burden on Monetary Policy Ramon Marimon, Javier Díaz-Giménez, Giorgia Giovannetti, Pedro Teles. NBER Working Paper No. Issued in December NBER Program(s):International Finance and Macroeconomics, Monetary Economics We characterize the optimal sequential choice of monetary policy in economies with either nominal or indexed debt.

The Four levels of measurement scales for measuring variables with their definitions, examples and questions: Nominal, Ordinal, Interval, Ratio. Nominal scale is a naming scale, where variables are simply "named" or labeled, with no specific order.

Ordinal scale has all its variables in a specific order, beyond just naming them. Interval scale offers labels, order, as well as, a specific. In financial markets, indexed bonds have been issued in some countries: such bonds provide a link between nominal returns and changes in prices.

In some countries, personal income tax brackets have been automatically adjusted for inflation, so as to avoid undue rises in tax liabilities due solely to inflation. We show that nominal debt provides valuable insurance against the financial effects of economic fluctuations and variations in government expenditures.

Even though there are incentives for the government to manipulate the price level, which imply that high nominal debt raises expected inflation, it is not optimal to issue only indexed debt.

are based on the book values of total debt and total equity. are based on the market value of the firm's debt and equity securities. are computed using the book value of the long-term debt and the book value of equity.

remain constant over time unless the firm issues new securities. are restricted to the firm's debt and common. Financial Management MCQs with Answers download and read book contain more MCQs with Answers ans also True and False statement with Answers.

[2] On average, public debt rose from 60% of GDP on the eve of the crisis (end) to almost 75% by end IMF country teams project debt ratios to continue rising over the next five years, averaging more than 85% of GDP by Japan ’s public debt is expected to reach nearly % of GDP in Portugal, Italy, Ireland and Greece all show projected public debt above or headed.

“Management of Nominal Public Debt: Theory and Applications,” in The Political Economy of Government Debt, eds. Harrie Verbon and Frans van Winden; Amsterdam, Holland: North Holland, “Inflation Stabilization and Nominal Anchors,” with C.

Végh, Contemporary Policy Issues, April Types of Data & Measurement Scales: Nominal, Ordinal, Interval and Ratio CSc Fall There are four measurement scales (or types of data): nominal, ordinal, interval and ratio.

These are simply ways to categorize different types of variables. This topic is usually discussed in the context of academic. Our price index fell 12 percent per year from to while official prices moved up modestly.

Using our digital services index, we estimate total personal consumption expenditure (PCE) prices have risen nearly 1/2 percentage point slower than the official index since   Target the spread between indexed and non-indexed debt, which represents expected inflation.

If the Fed wants, say, 2 percent inflation, then make the following offer to markets: Bring in a 1-year indexed Treasury bill and get back 1-year non-indexed Treasury bills and vice versa.

Return on Equity (ROE) is a measure of a company’s profitability that takes a company’s annual return (net income) divided by the value of its total shareholders' equity (i.e.

12%). ROE combines the income statement and the balance sheet as the net income or profit is compared to the shareholders’ equity. Rent-to-Own Equipment Co. is considering a new inventory system that will cost $, The system is expected to generate positive cash flows over the next four years in the amounts of $, in year one, $, in year two, $, in year three, and $, in year four.

A group of international agencies working together under the auspices of the Inter-Agency Task Force on Finance Statistics (TFFS) has produced the draft External Debt Statistics - Guide for Compilers and Users. The purpose of the Guide is to provide comprehensive guidance for the measurement and presentation of external debt statistics; it can be considered an update of the External Debt.

While the idea of governments issuing debt instruments whose repayments are indexed to GDP is not new, the current global backdrop of high government debt suggests the case for doing so might be especially strong now. This column introduces a new eBook in which leading economists, lawyers, and investors examine the case for issuing GDP-linked bonds, the obstacles to market.Extensive investigation of nominal rigidities and their role in shaping optimal exchange-rate policy; Other topics include fixed exchange-rate regimes, involuntary unemployment, optimal macroprudential policy, and sovereign default and debt sustainability; Chapters include exercises and replication codes.Finance Resources.

CFI has completed hundreds of articles and guides on important finance topics that all financial analysts should know. If you’re looking to advance your career and become a world-class financial analyst, this library is a great place to get started.

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