Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/318154 
Year of Publication: 
2019
Series/Report no.: 
BCAM Working Paper No. 1901
Publisher: 
Birkbeck, University of London, Birkbeck Centre for Applied Macroeconomics (BCAM), London
Abstract: 
We revisit Uribe's[32]'fiscal theory of sovereign risk,' which suggests a trade-off between stabilizing inflation and suppressing default. Unlike Uribe[32], we develop a class of dynamic stochastic general equilibrium models in which the fiscal surplus is endogenous, but where the default mechanism follows Uribe[32] with nominal rigidities. We find that an optimal monetary and fiscal policy, in which both the nominal interest rate and the tax rate are policy instruments, not only stabilizes inflation and the output gap, but also default through stabilizing the fiscal surplus. Thus, there is not necessarily a trade-off between stabilizing inflation and suppressing default.
Subjects: 
Sovereign Risk
Optimal Monetary Policy
Fiscal Theory of the Price Level
JEL: 
E52
E60
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.