01794cas a2200253 a 4500 AALejournalIMF003421 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451860764 1018-5941 BD-DhAAL BD-DhAAL Kumhof, Michael. Government Debt : A Key Role in Financial Intermediation / Michael Kumhof, Evan Tanner. Washington, D.C. : International Monetary Fund, 2005. 1 online resource (29 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students The literature on optimal fiscal policy finds that highly volatile real returns on government debt, for example through surprise inflation, have very low costs. However, policymakers are almost always very apprehensive of this option. The paper discusses evidence concerning features of developing country financial markets that are missing in existing models, and that may suggest why this policy is considered so costly in practice. Most importantly, domestic banks choose to be highly exposed to government debt because the alternative, private lending, is more risky under existing legal and institutional imperfections. This exposure makes banks and their borrowers vulnerable to the government's debt policy. Mode of access: Internet Tanner, Evan. IMF Working Papers; Working Paper ; No. 2005/057 Full text available on IMF http://elibrary.imf.org/view/journals/001/2005/057/001.2005.issue-057-en.xml IMF e-Library