Archive for December 19th, 2009

Can US inflate to reduce the debt?

December 19, 2009

Joshua Aizenman and Nancy Marion have written a very timely paper on US debt and measures to reduce it. Paper is pretty simple but still might take time. Voxeu has  a nice summary of the paper. I just love voxeu for this purpose. Not getting time to read a important paper, search in voxeu for a quick summary.

So can US inflate the debt?

As the US debt-to-GDP ratio rises towards 100%, policymakers will be tempted to inflate away the debt. This column examines that option and suggests that it is not far-fetched. US inflation of 6% for four years would reduce the debt-to-GDP ratio by 20%, a scenario similar to what happened following WWII.


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