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Money, Output, and the Nominal National Debt
Bruce Champ and Scott Freeman
The American Economic Review
Vol. 80, No. 3 (Jun., 1990), pp. 390-397
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/2006673
Page Count: 8
You can always find the topics here!Topics: Public debt, Economic capital, Fiat money, Economic inflation, Economic growth models, Economic models, Unanticipated inflation, Return on capital, Taxes
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This paper presents a model of finitely lived rational agents in which unanticipated innovations in the stock of fiat money affect real variables. An unanticipated inflation reduces the real value of the nominally denominated national debt, thereby reducing the crowding-out of capital and/or the tax burden. Both effects stimulate increased investment in capital, which leads to an increase in real output and wages in the following periods. In contrast with price-surprise models, these real effects occur even if the monetary innovation is instantly and perfectly observed by agents.
The American Economic Review © 1990 American Economic Association