Charles Goodhart, Duncan Needham, 16 May 2020

The COVID-19 crisis presents a multi-faceted challenge to policymakers. A combination of declining commodity prices, the rise in unemployment, and emergency state spending are all set to create challenging economic conditions, even as the pandemic itself subsides. This column argues that one mechanism that could help control long-run inflation levels is the issuance of long-dated gilts. This would also help to protect the young and unborn generations from the threat of resurgent inflation, which could lead to a massive rise in their future debt service requirements. 

Martin Ellison, Andrew Scott, 20 October 2017

A new dataset for the market value of British government debt makes a long-run analysis of fiscal sustainability and debt management possible. It shows that the 20th century saw a shift to financing debt by inflation and low bondholder returns, rather than through fiscal surpluses. This column uses a counterfactual analysis to show that long bonds have been an expensive way of financing debt, especially after a financial crisis. Had the government issued only three-year bonds since 1914, the level of debt in 2017 would have been lower by 28% of GDP.

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