TY  - JOUR
AU  - Angeletos,George-Marios
AU  - Collard,Fabrice
AU  - Dellas,Harris
AU  - Diba,Behzad
TI  - Optimal Public Debt Management and Liquidity Provision
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18800
PY  - 2013
Y2  - February 2013
UR  - http://www.nber.org/papers/w18800
L1  - http://www.nber.org/papers/w18800.pdf
N1  - Author contact info:
George-Marios Angeletos
Department of Economics
MIT E52-251
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/452-3859
Fax: 617/253-1330
E-Mail: angelet@mit.edu

Fabrice Collard
University of Bern
Departement Volkswirtschaftslehre
Schanzeneckstrasse 1
CH-3001 Bern, Switzerland
E-Mail: fabrice.collard@vwi.unibe.ch

Harris Dellas
Department of Economics
University of Bern
VWI, Schanzeneckstrasse 1
CH 3012 Bern
Switzerland
E-Mail: harris.dellas@vwi.unibe.ch

Behzad Diba
Department of Economics
Georgetown University
Washington, DC  20057
Tel: 202-687-5682
Fax: 202-687-6102
E-Mail: dibab@georgetown.edu
AB  - We study the Ramsey policy problem in an economy in which firms face a collateral constraint.  Issuing more public debt alleviates this friction by increasing the aggregate quantity of collateral. In so doing, however, the issuance of more debt also raises interest rates, which in turn increases the tax burden of servicing the entire outstanding debt. We first document how this trade-off upsets the optimality of tax smoothing and, in contrast to the standard paradigm, helps induce a unique and stable steady-state level of debt in the deterministic version of the model. We next study the optimal policy response to fiscal and financial shocks in the stochastic version. We finally show how the results extend to a variant model in which the financial friction afflicts consumers rather than firms.
ER  -