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Inflating away the public debt? An empirical assessment

Hilscher, Jens, Raviv, Alon and Reis, Ricardo (2022) Inflating away the public debt? An empirical assessment. Review of Financial Studies, 35 (3). 1553 - 1595. ISSN 0893-9454

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Identification Number: 10.1093/rfs/hhab018


This paper proposes a new method for measuring the impact of inflation on the real value of public debt. The distribution of debt debasement is based on two inputs: the distribution of privately held nominal debt by maturity, for which we provide new estimates, and the distribution of risk-adjusted inflation dynamics, for which we provide a novel copula estimator using options data. We find that inflation by itself is unlikely to lower the U.S. fiscal burden significantly because debt is concentrated at short maturities and perceived inflation shocks have little short-run persistence and are small.

Item Type: Article
Official URL:
Additional Information: © 2021 The Authors
Divisions: Economics
Subjects: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E64 - Incomes Policy; Price Policy
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
Date Deposited: 02 Dec 2020 11:15
Last Modified: 21 Jun 2024 01:54

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