Macroeconomics seminar - Xuan Zhou (Deakin University)

Title: Inflation’s Role in Optimal Monetary and Fiscal Policy.

Abstract: We address the optimal marginal source of financing shocks that raise fiscal needs in the presence of a maturity structure for nominal government debt, distortionary taxes, and sticky prices. We find: (1) the importance of current and expected inflation surprises to revalue debt increases with both the average maturity and the level of debt; (2) an analytical trade-off between inflation and output gap stabilization as a function of debt maturity; (3) at current debt levels in advanced economies, inflation accounts for over 50 percent of marginal optimal financing; (5) maturity attenuates welfare losses from nominal rigidities.

Zoom: link (Password: 990249)

The schedule for the rest of the semester is here.