William K. Reilly
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780195168006
- eISBN:
- 9780199783458
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0195168003.003.0010
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter examines debt-for-nature swaps and their potential for offsetting sovereign debt. Debt-for-nature swaps originated in the 1980s as a way of preserving natural areas in the developing ...
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This chapter examines debt-for-nature swaps and their potential for offsetting sovereign debt. Debt-for-nature swaps originated in the 1980s as a way of preserving natural areas in the developing world while at the same time reducing the external debt of the host country. The win-win nature of this type of transaction created many potential applications, and the US Congress and other national legislatures soon passed legislation enabling billions of dollars worth of swaps to take place. However, that potential was never realized. Legislative mandates were not funded, developing countries became suspicious of swaps as they believed they posed a threat to their sovereignty, and an improvement in debt markets reduced the attractiveness of swap economics. It is argued that although swaps are not a panacea for either debt reduction or environmental protection, they offer a concrete tool to promote both ends, and tremendous potential for swaps still exists.Less
This chapter examines debt-for-nature swaps and their potential for offsetting sovereign debt. Debt-for-nature swaps originated in the 1980s as a way of preserving natural areas in the developing world while at the same time reducing the external debt of the host country. The win-win nature of this type of transaction created many potential applications, and the US Congress and other national legislatures soon passed legislation enabling billions of dollars worth of swaps to take place. However, that potential was never realized. Legislative mandates were not funded, developing countries became suspicious of swaps as they believed they posed a threat to their sovereignty, and an improvement in debt markets reduced the attractiveness of swap economics. It is argued that although swaps are not a panacea for either debt reduction or environmental protection, they offer a concrete tool to promote both ends, and tremendous potential for swaps still exists.
Thomas J. Sargent
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691158709
- eISBN:
- 9781400847648
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691158709.003.0010
- Subject:
- Economics and Finance, Economic History
This chapter shows that predicaments facing the European Union today are reminiscent of constitutional decisions the United States faced not once, but twice. It begins with a simple expected present ...
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This chapter shows that predicaments facing the European Union today are reminiscent of constitutional decisions the United States faced not once, but twice. It begins with a simple expected present value model for government debt and explains how Hansen and Sargent (1980) used rational expectations econometrics to render this model operational. It then presents a case study that illustrates how the constitutions of the United States have influenced the government net-of-interest surplus process and therefore the value of government debt. Drawing on the unpleasant arithmetic of Sargent and Wallace (1981), the chapter argues that a responsible fiscal policy makes it easy for a monetary authority to sustain low inflation, whereas a profligate fiscal policy has the opposite effect.Less
This chapter shows that predicaments facing the European Union today are reminiscent of constitutional decisions the United States faced not once, but twice. It begins with a simple expected present value model for government debt and explains how Hansen and Sargent (1980) used rational expectations econometrics to render this model operational. It then presents a case study that illustrates how the constitutions of the United States have influenced the government net-of-interest surplus process and therefore the value of government debt. Drawing on the unpleasant arithmetic of Sargent and Wallace (1981), the chapter argues that a responsible fiscal policy makes it easy for a monetary authority to sustain low inflation, whereas a profligate fiscal policy has the opposite effect.
Thomas J. Sargent
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691158709
- eISBN:
- 9781400847648
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691158709.003.0008
- Subject:
- Economics and Finance, Economic History
This chapter consists of six essays that use “unpleasant monetarist arithmetic” to interpret events during the 1980s and 1990s in Brazil and the United States. During the 1980s, the United States ...
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This chapter consists of six essays that use “unpleasant monetarist arithmetic” to interpret events during the 1980s and 1990s in Brazil and the United States. During the 1980s, the United States took steps along a path upon which Brazil had travelled much further, a path along which interest-bearing government debt is growing as a percentage of GNP. The U.S. government was able readily to borrow large amounts, and had far to go before the government's budget constraint threatened to impose painful choices among the options of raising taxes, lowering government expenditures, or printing currency. Brazil found its ability to borrow very limited, and therefore had to confront those painful choices immediately. One essay emphasizes that a country's inflation rate at any moment emerges out of the sustained monetary and fiscal policy that it chooses, now and in the future.Less
This chapter consists of six essays that use “unpleasant monetarist arithmetic” to interpret events during the 1980s and 1990s in Brazil and the United States. During the 1980s, the United States took steps along a path upon which Brazil had travelled much further, a path along which interest-bearing government debt is growing as a percentage of GNP. The U.S. government was able readily to borrow large amounts, and had far to go before the government's budget constraint threatened to impose painful choices among the options of raising taxes, lowering government expenditures, or printing currency. Brazil found its ability to borrow very limited, and therefore had to confront those painful choices immediately. One essay emphasizes that a country's inflation rate at any moment emerges out of the sustained monetary and fiscal policy that it chooses, now and in the future.
Robert N. McCauley and Kazuo Ueda
- Published in print:
- 2012
- Published Online:
- May 2012
- ISBN:
- 9780199698165
- eISBN:
- 9780191738630
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199698165.003.0009
- Subject:
- Economics and Finance, Financial Economics
Debt management can be used at low interest rates to lower bond yields, to provide bank assets and thereby help maintain broad money growth, or to save on interest payments. The US example in the ...
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Debt management can be used at low interest rates to lower bond yields, to provide bank assets and thereby help maintain broad money growth, or to save on interest payments. The US example in the 1930s and the recent Japanese case suggest that this tool was not fully exploited in either case.Less
Debt management can be used at low interest rates to lower bond yields, to provide bank assets and thereby help maintain broad money growth, or to save on interest payments. The US example in the 1930s and the recent Japanese case suggest that this tool was not fully exploited in either case.
Thomas J. Sargent
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691158709
- eISBN:
- 9781400847648
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691158709.003.0006
- Subject:
- Economics and Finance, Economic History
This chapter examines the large net-of-interest deficits in the U.S. federal budget that have marked the administration of Ronald Reagan. It explains the fiscal and monetary actions observed during ...
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This chapter examines the large net-of-interest deficits in the U.S. federal budget that have marked the administration of Ronald Reagan. It explains the fiscal and monetary actions observed during the Reagan administration as reflecting the optimal decisions of government policymakers. The discussion is based on an equation whose validity is granted by all competing theories of macroeconomics: the intertemporal government budget constraint. The chapter first considers the government budget balance and the optimal tax smoothing model of Robert Barro before analyzing monetary and fiscal policy during the Reagan years: a string of large annual net-of-interest government deficits accompanied by a monetary policy stance that has been tight, especially before February 1985, and even more so before August 1982. Indicators of tight monetary policy are high real interest rates on government debt and pretax yields that exceed the rate of economic growth.Less
This chapter examines the large net-of-interest deficits in the U.S. federal budget that have marked the administration of Ronald Reagan. It explains the fiscal and monetary actions observed during the Reagan administration as reflecting the optimal decisions of government policymakers. The discussion is based on an equation whose validity is granted by all competing theories of macroeconomics: the intertemporal government budget constraint. The chapter first considers the government budget balance and the optimal tax smoothing model of Robert Barro before analyzing monetary and fiscal policy during the Reagan years: a string of large annual net-of-interest government deficits accompanied by a monetary policy stance that has been tight, especially before February 1985, and even more so before August 1982. Indicators of tight monetary policy are high real interest rates on government debt and pretax yields that exceed the rate of economic growth.
Thomas J. Sargent and François R. Velde
- Published in print:
- 2001
- Published Online:
- November 2003
- ISBN:
- 9780199248278
- eISBN:
- 9780191596605
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199248273.003.0009
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The Lucas and Stokey (1983) economy without capital is used to exhibit features of the Lucas and Stokey model of optimal taxation, and show how they compare with Barro's (1979) tax‐smoothing model. ...
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The Lucas and Stokey (1983) economy without capital is used to exhibit features of the Lucas and Stokey model of optimal taxation, and show how they compare with Barro's (1979) tax‐smoothing model. Computation of optimal fiscal policies for Lucas and Stokey's model requires repeated evaluations of the present value of the government's surplus, an object formally equivalent to an asset price. The functional equation for an asset price is typically difficult to solve. A linear quadratic version of Lucas and Stokey's model is specified, which makes both asset pricing computations and optimal fiscal policy calculations easy. Martingale returns on government debt are discussed, and examples and extensions of Lucas and Stokey's model given. Two appendices describe and discuss: the key steps for two basic kinds of stochastic process (a stochastic first‐order linear difference equation and a Markov chain), and time consistency and the structure of debt. Lastly, details are given of the appropriate MATLAB programs.Less
The Lucas and Stokey (1983) economy without capital is used to exhibit features of the Lucas and Stokey model of optimal taxation, and show how they compare with Barro's (1979) tax‐smoothing model. Computation of optimal fiscal policies for Lucas and Stokey's model requires repeated evaluations of the present value of the government's surplus, an object formally equivalent to an asset price. The functional equation for an asset price is typically difficult to solve. A linear quadratic version of Lucas and Stokey's model is specified, which makes both asset pricing computations and optimal fiscal policy calculations easy. Martingale returns on government debt are discussed, and examples and extensions of Lucas and Stokey's model given. Two appendices describe and discuss: the key steps for two basic kinds of stochastic process (a stochastic first‐order linear difference equation and a Markov chain), and time consistency and the structure of debt. Lastly, details are given of the appropriate MATLAB programs.
Ranald C. Michie
- Published in print:
- 2001
- Published Online:
- November 2003
- ISBN:
- 9780199242559
- eISBN:
- 9780191596643
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199242550.003.0012
- Subject:
- Economics and Finance, Economic History, Financial Economics
The first section of this chapter outlines the growing threats to the London Stock Exchange through the 1970s, including the ability of its members to block new proposals by the Council of the Stock ...
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The first section of this chapter outlines the growing threats to the London Stock Exchange through the 1970s, including the ability of its members to block new proposals by the Council of the Stock Exchange, the investigation by the Monopolies Commission into the various restrictive practices of the Stock Exchange, relations with and attitude of the government, the formation of the Council of the Securities Industry (CSI), which was to take over responsibility for the Stock Exchange and other components of the securities market. The second section of the chapter discusses the limited responses of the Stock Exchange to these threats. The next two sections discuss technology and competition (from computerized trading systems), and change among the members (mergers, which resulted in a disproportionately large number of large firms as members, and a loss in numbers of jobbers). The last section looks at market opportunities––domestic corporate securities, government debt securities, loss of the foreign securities, traded options, the collapse of the securities market in 1974, and the by‐now limited role of the money market.Less
The first section of this chapter outlines the growing threats to the London Stock Exchange through the 1970s, including the ability of its members to block new proposals by the Council of the Stock Exchange, the investigation by the Monopolies Commission into the various restrictive practices of the Stock Exchange, relations with and attitude of the government, the formation of the Council of the Securities Industry (CSI), which was to take over responsibility for the Stock Exchange and other components of the securities market. The second section of the chapter discusses the limited responses of the Stock Exchange to these threats. The next two sections discuss technology and competition (from computerized trading systems), and change among the members (mergers, which resulted in a disproportionately large number of large firms as members, and a loss in numbers of jobbers). The last section looks at market opportunities––domestic corporate securities, government debt securities, loss of the foreign securities, traded options, the collapse of the securities market in 1974, and the by‐now limited role of the money market.
Hanaa Kheir-El-Din
- Published in print:
- 2009
- Published Online:
- September 2011
- ISBN:
- 9789774163036
- eISBN:
- 9781617970344
- Item type:
- chapter
- Publisher:
- American University in Cairo Press
- DOI:
- 10.5743/cairo/9789774163036.003.0006
- Subject:
- Political Science, Political Economy
Theory and empirical evidence offers theoretical background and an empirical literature review of the relationship between budget and deficit and the inflationary process. If monetary policy is ...
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Theory and empirical evidence offers theoretical background and an empirical literature review of the relationship between budget and deficit and the inflationary process. If monetary policy is accommodative to a budget deficit, money supply will continue to rise for a long time; the aggregate demand schedule will shift to the right, causing output to increase above the natural level. If monetary policy is accommodative to a persistent budget deficit, the central bank may directly finance budget deficit by lending funds to the government to pay its bills; or else the central bank may purchase government debt at the time of issuance, or later in the course of open market operations. In the monetarist perspective, inflation is driven by money growth.Less
Theory and empirical evidence offers theoretical background and an empirical literature review of the relationship between budget and deficit and the inflationary process. If monetary policy is accommodative to a budget deficit, money supply will continue to rise for a long time; the aggregate demand schedule will shift to the right, causing output to increase above the natural level. If monetary policy is accommodative to a persistent budget deficit, the central bank may directly finance budget deficit by lending funds to the government to pay its bills; or else the central bank may purchase government debt at the time of issuance, or later in the course of open market operations. In the monetarist perspective, inflation is driven by money growth.
Takero Doi, Toshihiro Ihori, and Kiyoshi Mitsui
- Published in print:
- 2007
- Published Online:
- February 2013
- ISBN:
- 9780226386812
- eISBN:
- 9780226387062
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226387062.003.0012
- Subject:
- Economics and Finance, South and East Asia
The Japanese government has issued a very huge amount of government debts, making it crucial for the government to implement tight public debt policy. Japan's fiscal situation has deteriorated ...
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The Japanese government has issued a very huge amount of government debts, making it crucial for the government to implement tight public debt policy. Japan's fiscal situation has deteriorated rapidly with the collapse of the bubble economy in the early 1990s and the deep and prolonged period of economic recession that ensued. Since national income did not grow much, tax revenue did not increase either. On the contrary, government spending has been gradually raised due to political pressures of interest groups, resulting in large budget deficits. This chapter examines sustainability issues of Japan's fiscal policy and discusses the country's debt management policy using theoretical models and numerical studies. It also investigates the desirable coordination of fiscal and monetary authorities toward fiscal reconstruction, first reviewing previous studies on sustainability issues and then evaluating Japan's debt management policy. The chapter concludes by investigating confidence crisis of government debt and spontaneous default of fiscal authority.Less
The Japanese government has issued a very huge amount of government debts, making it crucial for the government to implement tight public debt policy. Japan's fiscal situation has deteriorated rapidly with the collapse of the bubble economy in the early 1990s and the deep and prolonged period of economic recession that ensued. Since national income did not grow much, tax revenue did not increase either. On the contrary, government spending has been gradually raised due to political pressures of interest groups, resulting in large budget deficits. This chapter examines sustainability issues of Japan's fiscal policy and discusses the country's debt management policy using theoretical models and numerical studies. It also investigates the desirable coordination of fiscal and monetary authorities toward fiscal reconstruction, first reviewing previous studies on sustainability issues and then evaluating Japan's debt management policy. The chapter concludes by investigating confidence crisis of government debt and spontaneous default of fiscal authority.
Michael Kumhof and Evan Tanner
- Published in print:
- 2008
- Published Online:
- August 2013
- ISBN:
- 9780262182669
- eISBN:
- 9780262282284
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262182669.003.0011
- Subject:
- Economics and Finance, Econometrics
This chapter argues that the reason why policy makers avoid unanticipated levies on government debt is because government debt plays a key role in financial intermediation. Hence, defaulting or ...
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This chapter argues that the reason why policy makers avoid unanticipated levies on government debt is because government debt plays a key role in financial intermediation. Hence, defaulting or inflating it away would be akin to a negative technological shock. To make an empirical case for this argument, the chapter shows that in developing countries (1) government domestic debt is now larger than external debt, and growing relative to external debt; (2) banks voluntarily hold a very large fraction of their assets in domestic government debt; and (3) a deep and stable government bond market is critical for further development of domestic financial markets. In this light, explicit or implicit defaults on government debt would have real costs that would need to be traded off against the benefits of lower distortionary taxation.Less
This chapter argues that the reason why policy makers avoid unanticipated levies on government debt is because government debt plays a key role in financial intermediation. Hence, defaulting or inflating it away would be akin to a negative technological shock. To make an empirical case for this argument, the chapter shows that in developing countries (1) government domestic debt is now larger than external debt, and growing relative to external debt; (2) banks voluntarily hold a very large fraction of their assets in domestic government debt; and (3) a deep and stable government bond market is critical for further development of domestic financial markets. In this light, explicit or implicit defaults on government debt would have real costs that would need to be traded off against the benefits of lower distortionary taxation.
