Public Debt as Private Liquidity: Optimal Policy

George-Marios Angeletos, Fabrice Collard and Harris Dellas ()

No 22794, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D52 D53 E13 E32 E51 E60 H21 H63 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
Note: EFG ME PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

Published as George-Marios Angeletos & Fabrice Collard & Harris Dellas, 2023. "Public Debt as Private Liquidity: Optimal Policy," Journal of Political Economy, vol 131(11), pages 3233-3264.

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Related works:
Journal Article: Public Debt as Private Liquidity: Optimal Policy (2023)
Working Paper: Public debt as private liquidity: optimal policy (2023)
Working Paper: Public Debt as Private Liquidity: Optimal Policy * (2023)
Working Paper: Public Debt as Private Liquidity: Optimal Policy (2022)
Working Paper: Public Debt as Private Liquidity: Optimal Policy (2021)
Working Paper: Public Debt as Private Liquidity: Optimal Policy (2020)
Working Paper: Public Debt as Private Liquidity: Optimal Policy (2020)
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