摘要:The paper is organized around the following question: when
the economy moves from a debt-GDP level where the probability
of default is nil to a higher level—the “fiscal limit”—where
the default probability is non-negligible, how do the effects
of routine monetary operations designed to achieve macroeconomic
stabilization change? We find that the specification of
the monetary policy rule plays a critical role. Consider a central
bank that targets the risky rate. When the economy is
near its fiscal limit, a transitory monetary policy contraction
leads to a sustained rise in inflation, even though monetary policy
actively targets inflation and fiscal policy passively adjusts
taxes to stabilize debt. If the central bank targets the riskfree
rate, on the other hand, the same transitory monetary
contraction keeps inflation under control but leads output to
contract for a prolonged period of time. The comparison shows
that sovereign default risk puts into sharp relief the tradeoff
between inflation and output stabilization.