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Comments on: UK debt and default http://www.tvhe.co.nz/2012/12/14/uk-debt-and-default/ The Visible Hand in Economics Sun, 16 Dec 2012 22:37:00 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Matt Nolan http://www.tvhe.co.nz/2012/12/14/uk-debt-and-default/#comment-40306 Sun, 16 Dec 2012 22:37:00 +0000 http://www.tvhe.co.nz/?p=7891#comment-40306 In reply to jamesz.

I hope he did make the point, as it’s more likely to be right in that case 🙂

Indeed. I am glad to see you bring up the flipside, because non-economists often forget we are talking about a very specific case due to the ZLB – rather than a commitment you can just break for kicks all the time!

]]> By: jamesz http://www.tvhe.co.nz/2012/12/14/uk-debt-and-default/#comment-40300 Fri, 14 Dec 2012 09:36:00 +0000 http://www.tvhe.co.nz/?p=7891#comment-40300 In reply to Matt Nolan.

Wasn’t that last point the one being promoted by Wren-Lewis a few weeks back?

Also, I don’t disagree with them about the likelihood of default, but I can’t see how anyone could think that there will be no market reaction to those risks. I think they’re just simplifying and discarding low probabiliy events for the sake of exposition, which is fair enough when you’re talking to a general audience.

]]> By: Matt Nolan http://www.tvhe.co.nz/2012/12/14/uk-debt-and-default/#comment-40299 Thu, 13 Dec 2012 17:53:00 +0000 http://www.tvhe.co.nz/?p=7891#comment-40299 Yar, one of the advantages of an explicit target for the price level/growth (this includes NGDP) is that it commits to a path of not defaulting on the real value of debt – and so reduces the risk premium faced my government ex ante.

http://www.tvhe.co.nz/2012/11/29/a-different-view-of-an-inflationprice-level-target-no-monetization-commitment/

I can understand where Portes and Chote are coming from, as in the most extreme case we may be willing to break this commitment (where the expected future benefit of credible commitment is lower than the reduction in cost to govenment – so our time inconsistency issue is essentially irrelevant). However, it is good for you to raise the other side of the coin.

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