The Procyclicality of Inflation-Linked Debt
19 Pages Posted: 15 Jun 2022
Abstract
This paper uses UK time-series data to document that the ratio of inflation-linked debt to total public debt (“linker share”) is procyclical. The business cycle properties of the linker share indicate a positive relationship with inflation, even after controlling for breakeven inflation. This can be explained by the tax-smoothing incentives of the government in a simple Ramsey model. Results are similar for the US.
Keywords: Government Debt, Optimal Fiscal Policy, Inflation-Indexed Bonds JEL codes: E31, E62, G11
Suggested Citation: Suggested Citation
Pinter, Gabor, The Procyclicality of Inflation-Linked Debt. Available at SSRN: https://ssrn.com/abstract=4137063 or http://dx.doi.org/10.2139/ssrn.4137063
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