The problem of time inconsistency arises from two different sources. First, as shown by Guillermo A. Calvo (1978), the re is an incentive for each government to engage in an initial unanti cipated inflation. Second, as discussed by Robert E. Lucas and Nancy L. Stokey (1983), there is an...

This paper demonstrates how time consistency of the Ramsey policy-the optimal fiscal and monetary policy under commitment-can be achieved. Each government should leave its successor with a unique maturity structure for nominal and indexed debt, such that the marginal benefit of a surprise...