Citation

Discussion Paper Details

Please find the details for DP10078 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Inflating Away the Public Debt? An Empirical Assessment

Author(s): Jens Hilscher, Alon Raviv and Ricardo Reis

Publication Date: July 2014

Keyword(s): copulas, inflation options, maturity of government debt and required reserves

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: We propose and implement a method that provides quantitative estimates of the extent to which higher-than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10078

Bibliographic Reference

Hilscher, J, Raviv, A and Reis, R. 2014. 'Inflating Away the Public Debt? An Empirical Assessment'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10078