Debt and Incomplete Financial Markets : A Case for Nominal GDP Targeting ∗

@inproceedings{Sheedy2012DebtAI,
  title={Debt and Incomplete Financial Markets : A Case for Nominal GDP Targeting ∗},
  author={Kevin D. Sheedy},
  year={2012}
}
  • Kevin D. Sheedy
  • Published 2012
Financial markets are incomplete, thus for many agents borrowing is possible only by accepting a financial contract that specifies a fixed repayment. However, the future income that will repay this debt is uncertain, so risk can be inefficiently distributed. This paper argues that a monetary policy of nominal GDP targeting can improve the functioning of incomplete financial markets when incomplete contracts are written in terms of money. By insulating agents' nominal incomes from aggregate real… CONTINUE READING