Catenarian fiscal discipline

Hans Gersbach 04 January 2014

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Limiting the accumulation of public debt in democracies has always been a problem, but it has become a particularly pressing one in the last few decades. While there are normative justifications for public debt-making – such as letting automatic stabilisers and tax-smoothing measures operate (Barro 1979) – political processes tend to push public debt to levels that are likely to be socially undesirable.

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Topics:  Macroeconomic policy

Tags:  democracy, fiscal policy, debt, time inconsistency, fiscal discipline

Dumping Russia in 1998 and Lehman ten years later: Triple time-inconsistency episodes

Guillermo Calvo 31 August 2009

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In the last decade we have witnessed two major systemic financial crises, namely, the 1998 Russian crisis and the current crisis, the latter initially associated with the subprime mortgage market (henceforth, subprime crisis). A critical event in the subprime crisis was the Lehman Brothers’ episode in September 2008. Lehman’s collapse, coming on the heels of the sell-off of Bear Stearns, took the market by surprise. The ensuing about-face regarding AIG was perhaps less surprising but still added a heavy dose of policy uncertainty.

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Topics:  Macroeconomic policy

Tags:  crisis, time inconsistency, time-inconsistent plans