The Debt Burden and its Consequences for Monetary Policy: Proceedings of a Conference held by the International Economic Association at the Deutsche Bundesbank, Frankfurt, Germany PDF
Preview The Debt Burden and its Consequences for Monetary Policy: Proceedings of a Conference held by the International Economic Association at the Deutsche Bundesbank, Frankfurt, Germany
THE DEBTBURDEN AND ITS CONSEQUENCES FOR MONETARY POLICY This is lEA conference volume no. 118 The Debt Burden and its Consequences for Monetary Policy Proceedings ofa Conference held by the International Economic Association at the Deutsche Bundesbank, Frankfurt, Germany Edited by Guillermo Calvo and Mervyn King in association with the INTERNATIONAL ECONOMIC ASSOCIATION * © International Economic Association 1998 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Totten ham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. Published by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin's Press, LLC and of Palgrave Macmillan Ltd. Macmillan<~> is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 978-1-349-26079-9 ISBN 978-1-349-26077-5 (eBook) DOI 10.1007/978-1-349-26077-5 Outside North America ISBN 978-0-333-64140-8 Inside North America ISBN 978-0-312-17579-5 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Catalog Card Number: 97-10258 Contents The InternationalEconomic Association vii List ofParticipants and Contributors ix AbbreviationsandAcronyms xi Introduction Guillermo CalvoandMervyn King xiii PARTI OVERVIEW PAPERS 1 Debt andMonetaryPolicy:ThePolicyIssues ROOiDornbusch 3 Discussion Mervyn King 23 2 Debt, Cash Flowand Inflation Incentives:ASwedishExample Mats Persson. Torsten Persson and Lars E. O.Svensson 28 Discussion John Campbell 63 PARTIT THESTRUCTURE AND MATURITYOF DEBT 3 OptimalFunding Policy RobertJ. Barro 69 Discussion Francesco Giavazzi 82 4 Global GovernmentSecuritiesMarkets: Economicsand PoliticsofRecent MarketMicrostructureReforms RandallS. Kroszner 86 Discussion John Pitchford 111 v vi Contents PARTm DEBT ANDDOMESTICMONETARY POLICY 5 Control ofthe Public Debt: A Requirementfor PriceStability? MichaelWoodford 117 Discussion WilliamPerraudin 155 6 Towardsa Political-EconomicTheory ofDomesticDebt AllanDrazen 159 Discussion TakatoshiIto 177 PART IV DEBT ANDINTERNATIONAL FINANCIAL MARKETS 7 Varieties ofCapital-MarketCrises GuillermoA. Calvo 181 Discussion AssafRazin 203 8 DebtandExchangeRates PeterKugler 208 Discussion CharlesBean 227 PART V DEBT ANDMONETARY UNION 9 Credibility, Seigniorage andGovernmentDebt in aMonetary Union BerndHuber 233 Discussion AlbertoGiovannini 250 10 Deficits,Debt andEuropeanMonetary Union:SomeUnpleasantFiscal Arithmetic GeorgWinckler, Eduard Hochreiterand PeterBrandner 254 Discussion Iilrgen. von Hagen 277 Index 283 The International Economic Association A non-profit organization with purely scientific aims, the International EconomicAssociation(lEA)was foundedin 1950.Itisafederationofsome sixty national economic associations in all parts of the world. Its basic purpose is the development of economics as an intellectual discipline, recognizing a diversity ofproblems, systems and values in the world and taking noteofmethodological diversities. ThelEAhas, sinceitscreation,soughttofulfillthatpurposebypromoting mutual understanding among economists through the organization of scientific meetings and common research programmes, and by means of publications on problems offundamental as well as of current importance. Derivingfrom its long concernto assure professionalcontacts between East and Westand North and South, the lEA pays special attention to issues of economics in systemic transition and in the course ofdevelopment. During itsnearlyfifty years ofexistence,ithas organizedsome hundredround-table conferences for specialists on topics ranging from fundamental theories to methodsand tools ofanalysisand majorproblemsofthepresent-day world. Participation in round tables is at the invitation ofa specialist programme committee, but eleven triennial World Congresses have regularly attracted the participationofindividualeconomistsfrom allovertheworld. TheAssociationisgovernedby aCouncil,composedofrepresentativesof all member associations, and by a fifteen-member Executive Committee whichiselectedby theCouncil.The ExecutiveCommittee (1995-98)atthe time ofthe FrankfurtConferencewas: President: ProfessorJacques Dreze, Belgium Vice-President: ProfessorAnne Krueger, USA Treasurer: ProfessorErichStreissler, Austria PastPresident: ProfessorMichaelBruno, Israel (deceased 25 December 1996) OtherMembers: ProfessorAnthonyB. Atkinson, UK ProfessorVittorioCorbo, Chile ProfessorKarel Dyba, Czech Republic ProfessorJean-Michel Grandmont, France ProfessorYujiro Hayami,Japan vii viii The International Economic Association ProfessorSeppo Honkapohja, Finland ProfessorValery Makarov, Russia ProfessorLuigi Pasinetti, Italy ProfessorHans Werner Sinn, Germany ProfessorRehmanSobhan, Bangladesh ProfessorAlan D.Woodland, Australia Advisers: ProfessorKenneth J.Arrow, USA Academician 01eg T. Bogomo1ov,Russia ProfessorMustaphaNabli, Tunisia ProfessorAmartyaSen,India ProfessorStefano Zamagni, Italy Secretary-General: ProfessorJean-PaulFitoussi, France GeneralEditor: ProfessorMichaelKaser, UK Sir AustinRobinson was an active Adviser on the publication of lEA conferenceproceedingsfrom 1954until his final short illness in 1993. The Association has also been fortunate in having secured many outstanding economists to serve as President: Gottfried Haberler (1950-53), Howard S. Ellis (1953-56), Erik Lindahl (1956-59), E. A. G. Robinson(1959--62),Ugo Papi (1962--65),Paul A. Samuelson (1965--68), ErikLundberg (1968-71), Fritz Machlup (1971-74), Edmund Malinvaud (1974-77), ShigetoTsuru (1977-80),VictorL.Urquidi (1980-83),Kenneth J. Arrow (1983-86), Amartya Sen (1986-89), Anthony B. Atkinson (1989-92) andMichaelBruno (1992-95). The activitiesoftheAssociationaremainlyfunded fromthesubscriptions ofmembersandgrantsfromanumberoforganizations, includingcontinuing supportfromUNESCO, through the International Social Science Council. List of Participants and Contributors Professor R. Barro, Department of Economics, Harvard University, Cambridge,Massachusetts, USA Professor C. Bean, Department of Economics, London School of Economics and Political Science, UK Mr P. Brandner, Department of Economics, University of Vienna, and Austrian InstituteofEconomicResearch, Vienna,Austria Mr C. Butler, Monetary Instruments and Markets Division, Bank of England, London, UK Professor G. Calvo, Center for International Economics, University of Maryland, USA Professor J. Campbell, Department of Economics, Harvard University, Cambridge, Massachusetts, USA and National Bureau of Economic Research, Cambridge,Massachusetts, USA Professor R. Dornbusch, Department of Economics, Massachusetts InstituteofTechnology, Cambridge,Massachusetts, USA Professor A. Drazen, Center for International Economics, University of Maryland,USAandNational BureauofEconomicResearch,Cambridge, Massachusetts, USA ProfessorF. Giavazzi,Bocconi University,Milan,Italy Dr A. Giovannini, CentreforEconomicPolicyResearch,London,UKand NationalBureauofEconomicResearch,Cambridge,Massachusetts,USA Dr E.Hochreiter, OesterreichischeNationalbank, Vienna,Austria ProfessorB. Huber, UniversityofMunich, Germany ProfessorO. Issing, DeutscheBundesbank,Frankfurt,Germany Dr T.Ito,ResearchDepartment, InternationalMonetaryFund,Washington DC, USA ProfessorM. King, Bank of England, London, UKandLondonSchoolof Economics and Political Science,UK Professor R. Kroszner, Graduate School of Business, University of Chicago, lllinois, USA ProfessorP. Kugler, Departmentof Applied Macroeconomics,University ofBern, Switzerland ProfessorL.Pasinetti, CatholicUniversity ofMilan,Italy ix x List ofParticipants and Contributors Professor W. Perraudin, Department of Economics, Birkbeck College London, UK Professor M. Persson, Institute for International Economic Studies, Stockholm, Sweden Professor T. Persson, Institute for International Economic Studies, Stockholm, Sweden Professor J. Pitchford, Economics Program, The Australian National University, Canberra, Australia Professor A. Razin, Eitan Berglas School of Economics, Tel Aviv University,Israel DrA.Schubert, OesterreichischeNationalbank, Vienna, Austria Professor E. Streissler, Department ofEconomics, University ofVienna, Austria ProfessorL. E. O. Svensson,Institute for International Economic Studies, Stockholm, Sweden Dr G. Tempel·GugereU, Oesterreichische Nationalbank, Vienna, Austria ProfessorJ.vonHagen, UniversityofMannheim, GermanyandUniversity ofIndiana,Bloomington, USA Professor G. Winckler, Department ofEconomics, University ofVienna, Austria ProfessorM. Woodford, Department ofEconomics, Princeton University, New Jersey,USA
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