Public debt stabilization: the relevance of policymakers’ time horizons

Policymakers are stuck in time. Political short-termism, policy myopia, policy short-sightedness, and similar words have been coined to emphasize the present-centric policy thinking. Politics tends to produce short time horizons, and as a result, policymakers often fail to use present opportunities to mitigate future harms. Focusing on fiscal and monetary strategic interactions, given different separate decision makers, our paper aims to explore the effects of policymakers’ time horizons on debt stabilization. To formalize our ideas, we use the novel concept of Nonlinear-model-predictive-control Feedback Nash Equilibrium (NFNE) and find that present-centric policy thinking and decision horizons matters under several dimensions.