Optimal management of indexed and nominal debt

In standard macroeconomics, fiscal policy involves choices about expenditures, taxes, and debt issue. The different kinds of public spending may be distinguished with respect to their interactions with private decisions. For example, some public activities influ-ence private production and some interact with households ’ choices of consumption and leisure. Taxes may also be differentiated by types; levies may fall on labor income, capital income, consumption, bodies, and so on. The fiscal authority also chooses its type of debt obligations. These decisions include the maturity structure of the debt, whether to issue nominal bonds or bonds indexed to either the price level or a foreign currency, whether debt payments should be contingent on other vari-ables such as government expenditures and the state of the business cycle, and so on. These kinds of decisions are less familiar to macro-economics, although some aspects have been studied by Lucas an