Is Inflation Effective for Liquidating Short-Term Nominal Debt?

14 Pages Posted: 15 Feb 2006

See all articles by Guillermo A. Calvo

Guillermo A. Calvo

Columbia University - School of International & Public Affairs (SIPA); National Bureau of Economic Research (NBER)

Date Written: January 3, 1989

Abstract

The possibility of reducing the real value of domestic non-indexed government debt through inflation is studied. A central result is that this kind of debt liquidation is possible even though prices are sticky and government bonds are short term. A policy implication is that short bond maturities are no safeguard against surprise devaluations intended to lower the burden of the debt. If devaluation incentives are present, it is further argued that nominal non-indexed bonds could give rise to situations where devaluations are a consequence of self-fulfilling expectations cycles.

JEL Classification: 311, 313, 321, 431

Suggested Citation

Calvo, Guillermo A., Is Inflation Effective for Liquidating Short-Term Nominal Debt? (January 3, 1989). IMF Working Paper No. 89/2. Available at SSRN: https://ssrn.com/abstract=884512

Guillermo A. Calvo (Contact Author)

Columbia University - School of International & Public Affairs (SIPA) ( email )

420 West 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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