NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Debt, Deficits and Inflation: An Application to the Public Finances of India

Willem H. Buiter, Urjit R. Patel

NBER Working Paper No. 3287 (Also Reprint No. r1724)
Issued in March 1990
NBER Program(s):   ITI   ME   IFM

The paper studies the solvency of the Indian public sector and the eventual monetization and inflation implied by stabilization of the debt-GNP ratio without any changes in the primary deficit. The nonstationarity of the discounted public debt suggests that indefinite continuation of the pattern of behavior reflected in the historical discounted debt process is inconsistent with the maintenance of solvency. This message is reinforced by the recent behavior of the debt-GNP ratio and the ratio of primary surplus plus seigniorage to GNP. Our estimates of the base money demand function suggest that even maximal use of seigniorage will not be sufficient to restore solvency.

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Document Object Identifier (DOI): 10.3386/w3287

Published: Journal of Public Economics, Vol. 47, pp. 171-205, (1992). citation courtesy of

 
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