Hidden Bibliographic Details
| Other authors / contributors: | International Monetary Fund. Research Department.
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| ISBN: | 1283515008
9781283515009
1451910479
9781451910476
1462352812
9781462352814
1452716838
9781452716831
9786613827456
6613827452
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| Notes: | Includes bibliographical references (pages 26-27).
Restrictions unspecified
Electronic reproduction. [Place of publication not identified] : HathiTrust Digital Library, 2010.
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212
English.
digitized 2010 HathiTrust Digital Library committed to preserve
Print version record.
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| Summary: | This paper explains why the debt reduction motive for countries that are subject to borrowing constraints and a volatile environment is greater than for those with a more stable environment and relatively better access to the financial markets. In particular, it shows that the possibility of losing the ability to borrow in the future induces precautionary debt reduction. When a government loses its ability to borrow, shocks are more costly to the economy, since they cannot be spread over time. The precautionary motive arises from the need to make these adjustments less painful when the borrowing constraints bind. To avoid large losses in the constrained period, the government prefers to raise taxes and inflation in earlier periods more than would be implied otherwise, leaving less debt to the future periods, and thereby shifting some of the required adjustment to the earlier periods. In other words, the coexistence of large shocks and borrowing constraints forces the government to be more prudent in its management of debt.
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| Other form: | Print version: Berkmen, Pelin. Precautionary monetary and fiscal policies. [Washington, D.C.] : International Monetary Fund, 2007
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| Standard no.: | 10.5089/9781451910476.001
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