Inflating Away the Public Debt? An Empirical Assessment

51 Pages Posted: 23 Jul 2014 Last revised: 30 Nov 2020

See all articles by Jens Hilscher

Jens Hilscher

University of California, Davis

Alon Raviv

Bar-Ilan University - Graduate School of Business Administration

Ricardo Reis

London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Date Written: November 29, 2020

Abstract

This paper proposes a new method to measure the impact of inflation on the real value of public debt. The distribution of debt debasement is based on two inputs: the distribution of privately-held nominal debt by maturity, for which we provide new estimates, and the distribution of risk-adjusted inflation dynamics, for which we provide a novel copula estimator using options data. We find that it is unlikely that inflation by itself can lower the U.S. fiscal burden significantly because debt is concentrated at short maturities and perceived inflation shocks have little short-run persistence and are small.

Keywords: inflation, debt debasement, value at risk, inflation derivatives, debt maturity structure, financial repression

JEL Classification: E31, E64, G18

Suggested Citation

Hilscher, Jens and Raviv, Alon and Reis, Ricardo A.M.R., Inflating Away the Public Debt? An Empirical Assessment (November 29, 2020). Available at SSRN: https://ssrn.com/abstract=2469994 or http://dx.doi.org/10.2139/ssrn.2469994

Jens Hilscher (Contact Author)

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

Alon Raviv

Bar-Ilan University - Graduate School of Business Administration ( email )

The Graduate School of Business Administration
Ana and Max Web st
Ramat Gan
Israel

Ricardo A.M.R. Reis

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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