Job Market Seminar by Dmitry Matveev (University of Mannheim)

On Wednesday, February 8 at 10.30 am, ICEF will hold the Job Market Seminar.
Speaker: Dmitry Matveev (University of Mannheim)
Theme: "Monetary Policy and Government Debt Dynamics without Commitment"

Venue: room 3211, bld. 3, ul. Shabolovka 26

Abstract: This paper studies optimal discretionary monetary and fiscal policy that reduces government debt. Raising labor income tax creates a traditional trade-off between inflation and output. Monetary policy internalizes the effects it has on the tax choice. The maturity of government debt critically influences the strength of these effects. In an economy with one-period government bonds, the gain from reducing the tax rate by increasing the price of newly issued bonds is strong enough to require a loose monetary policy. However, when bonds are long-term, monetary policy remains tight to trade off a decline in output for lower inflation. Furthermore, the long maturity of bonds slows down the speed of debt reduction up to the rate consistent with existing empirical evidence on the persistence of government debt. Finally, the long maturity of bonds brings down the welfare loss associated with debt reduction.

---

Forthcoming seminars
Past seminar