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| Author: | Bohn, H. |
| Title: | Time consistency of monetary policy in the open economy |
| Journal: | Journal of International Economics
1991 : MAY, VOL. 30:3-4, p. 249-266 |
| Index terms: | MONETARY POLICY OPEN ECONOMY CAPITAL MOBILITY GOVERNMENT DEBT WELFARE INFLATION |
| Language: | eng |
| Abstract: | In an open economy with capital mobility, the government's incentive to generate surprise inflation depends not only on government debt, but also on nominal private debt to foreigners. Given any external nominal debt, inflation redistributes wealth between domestic residents and foreigners. A government that cares about the welfare of its residents will be tempted to inflate whenever it or its residents have issued nominal debt to foreigners. An analysis of the USA net investment position shows that these international considerations have become increasingly relevant for the United States, because the recent external deficits have largely been financed in nominal terms. |
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