Fiscal Policy with Bond in Utility and Inflation

Files

Supervisors: Oikonomou, Rigas
Faculty: Faculté des sciences économiques, sociales, politiques et de communication
Degree label: Master [120] en sciences économiques, orientation économétrie, à finalité approfondie
Abstract: I build up an economy with sticky price in which government can only issue non-state contingent short-term bond to hedge against government spending shock, while households have predilection for and can derive utility from holding short-term bond. The numerical analysis suggests that due to households' preference for the bond, the government issuing short term debt against a positive spending shock, gives rise to declining consumption and lowering asset price and thus higher yield rate, which in return, encourages households to save more and casts a doubt on debt sustainability of the government. However, with inflation shock, demand for short-term bond in real term decreases as the asset price goes up, which lowers the yield rate and hence slacks the debt sustainability problem.

Kuang, H. (2023). Fiscal Policy with Bond in Utility and Inflation. https://dial-mem.test.bib.ucl.ac.be/handle/2078.2/37667