{
  "title": "Optimal Fiscal and Monetary Policy with Nominal and Indexed Debt",
  "publication": "IMF Working Papers, November 1, 2003",
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  "summary": "This paper highlights the importance of debt composition in setting optimal fiscal and monetary policy over short-run business cycles and in the long run.",
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    {
      "heading": "Summary",
      "content": "- This paper highlights the importance of debt composition in setting optimal fiscal and monetary policy over short-run business cycles and in the long run.\n- Nominal debt as state-contingent debt can be a significant policy tool to reduce the volatility of distortionary government policy, thereby reducing macroeconomic volatility while increasing equilibrium output and consumption.\n- The welfare gain from using nominal debt to hedge against shocks to the government budget is as large as the welfare gain from the ability to issue debt."
    },
    {
      "heading": "Key Findings",
      "content": "- Debt composition matters for both short-run business cycles and long-run policy outcomes.\n- Nominal debt functions as state-contingent debt and can be used to hedge government budget shocks.\n- Using nominal debt to hedge budget shocks reduces the volatility of distortionary government policy.\n- Reduced policy volatility translates into lower macroeconomic volatility and higher equilibrium output and consumption.\n- The welfare gain from hedging with nominal debt equals the welfare gain from the ability to issue debt."
    },
    {
      "heading": "Policy Implications",
      "content": "- Design of fiscal and monetary policy should incorporate debt composition as a policy variable.\n- Issuance choices between nominal and indexed debt can be used proactively to stabilize macroeconomic outcomes.\n- Policymakers can achieve welfare improvements comparable to those from access to debt markets by exploiting nominal debt’s state-contingent properties.\n\n---\n\n Content in this bundle\n\n- wp03225\n  - wp03225 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp03225 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/optimal-fiscal-and-monetary-policy-with-nominal-and-indexed-debt-16944"
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    "Authors: Thomas F. Cosimano, Michael T. Gapen",
    "Published: November 1, 2003",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451875379.001",
    "This paper highlights the importance of debt composition in setting optimal fiscal and monetary policy over short-run business cycles and in the long run.",
    "Nominal debt as state-contingent debt can be a significant policy tool to reduce the volatility of distortionary government policy, thereby reducing macroeconomic volatility while increasing equilibrium output and consumption.",
    "The welfare gain from using nominal debt to hedge against shocks to the government budget is as large as the welfare gain from the ability to issue debt.",
    "Debt composition matters for both short-run business cycles and long-run policy outcomes.",
    "Nominal debt functions as state-contingent debt and can be used to hedge government budget shocks.",
    "Using nominal debt to hedge budget shocks reduces the volatility of distortionary government policy.",
    "Reduced policy volatility translates into lower macroeconomic volatility and higher equilibrium output and consumption.",
    "The welfare gain from hedging with nominal debt equals the welfare gain from the ability to issue debt.",
    "Design of fiscal and monetary policy should incorporate debt composition as a policy variable.",
    "Issuance choices between nominal and indexed debt can be used proactively to stabilize macroeconomic outcomes.",
    "Policymakers can achieve welfare improvements comparable to those from access to debt markets by exploiting nominal debt’s state-contingent properties.",
    "**_wp03225**"
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