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Government Borrowing and Financial Markets

Published online by Cambridge University Press:  26 March 2020

Alan Budd ,
Geoffrey Dicks  and
Giles Keating
Alan Budd
Affiliation:
London Business School
Geoffrey Dicks
Affiliation:
London Business School
Giles Keating*
Affiliation:
London Business School
*
∗This paper is based on research funded by an ESRC grant.
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Extract

This paper considers two questions related to fiscal and monetary poticy in the United Kingdom. The questions are as follows:

  • (i) How do shocks to the economy affect monetary growth?

  • (ii) What effects do changes in the debt/income ratio have on the returns to financial assets?

The first question has been previously in relation to the LBS model. The second question has become relevant now that attention is being directed to the possible long-run constraints on fiscal policy. We take the opportunity to study question (i) in response to recent developments of the LBS model. The most significant developments are firstly the incorporation of a model of the financial sector in the LBS model and secondly the ability to incorporate rational expectations into the determination of asset prices in financial markets.

Type
Articles
Information
National Institute Economic Review , Volume 113 , August 1985 , pp. 89 - 97
Copyright
Copyright © 1985 National Institute of Economic and Social Research

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