Private Consumption, Inflation and the "Debt Neutrality Hypothesis" The Case of Eight OECD Countries
This paper examines the empirical basis for the debt-neutrality hypothesis in an international cross-section of eight major OECD countries over the period 1961-85. The analysis uses a dynamic demand system for durable and non-durable goods derived from individual optimizing behaviour. The model nest...
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| Format: | eBook |
| Language: | English |
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Paris
OECD Publishing
1988
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| Series: | OECD Economics Department Working Papers
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| Collection: | OECD Books and Papers - Collection details see MPG.ReNa |
| Summary: | This paper examines the empirical basis for the debt-neutrality hypothesis in an international cross-section of eight major OECD countries over the period 1961-85. The analysis uses a dynamic demand system for durable and non-durable goods derived from individual optimizing behaviour. The model nests three specifications corresponding to different degrees of consumer rationality: the traditional life-cycle consumption model, the case of inflation-adjustment of disposable income (no money illusion) and the case of full "tax discounting" (no fiscal illusion). In addition, the model incorporates explicitly the role of a variable interest rate and substitution between public and private consumption. The model is estimated using three different consumption aggregates at the single-country level and over the pooled data set. Estimates of the inflation-adjustment and fiscal illusion parameters are provided and specification tests opposing the three versions of the model are performed. The .. |
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| Physical Description: | 98 p. 21 x 29.7cm |