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Medientyp:
E-Artikel
Titel:
Debt and Incomplete Financial Markets: A Case for Nominal GDP Targeting
Beteiligte:
SHEEDY, KEVIN D.
Erschienen:
BROOKINGS INSTITUTION PRESS, 2014
Erschienen in:
Brookings Papers on Economic Activity (2014), Seite 301-361
Sprache:
Englisch
ISSN:
0007-2303;
1533-4465
Entstehung:
Anmerkungen:
Beschreibung:
For many households borrowing is possible only by accepting a financial contract that specifies a fixed repayment stream. However, the future income that will repay this debt is uncertain, so risk can be inefficiently distributed. This paper shows that when debt contracts are written in terms of money, a monetary policy of nominal GDP targeting improves the functioning of financial markets. By insulating households' nominal incomes from aggregate real shocks, this policy effectively achieves risk sharing by stabilizing the ratio of debt to income. The paper also shows that when there is price stickiness, the objective of improving risk sharing should still receive considerable weight in the conduct of monetary policy relative to stabilizing inflation.