This paper reviews theoretical results on financial policy. We use basic accounting identities to illustrate relations between gross assets and liabilities, net debt positions and the appropriation of (primary) budget surplus funds. We then discuss Ramsey policies, answering the question how a committed government may use financial instruments to pursue its objectives. Finally, we discuss additional roles for financial policy that arise as a consequence of political frictions, in particular lack of commitment.
Jointly with the Journal of Monetary Economics and the Swiss National Bank, the Study Center Gerzensee organized a conference in honor of Bob King, long-term supporter of the Study Center.
Jaume Ventura’s discussion of a paper on trade and growth by Alvarez and Lucas: PDF.
My discussion of a paper on debt and debt constraints by Bhandari, Evans, Golosov, and Sargent: PDF.