Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86817
Authors: 
Schabert, Andreas
Year of Publication: 
2009
Series/Report no.: 
Tinbergen Institute Discussion Paper 09-093/2
Abstract: 
This paper examines equilibrium determination under different monetary policy regimes when the government might default on its debt. We apply a cash-in-advance model where the government does not have access to non-distortionary taxation and does not account for initial outstanding debt when it sets the income tax rate. Solvency is then not guaranteed and sovereign default can affect the return on public debt. If the central bank sets the interest rate in a conventional way, the equilibrium allocation cannot be determined. If, instead, money supply is controlled, the equilibrium allocation can uniquely be determined.
Subjects: 
Equilibrium determination
interest rate policy
money supply
public debt
sovereign default
JEL: 
E31
E52
E63
Document Type: 
Working Paper

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