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Inflation's role in optimal monetary-fiscal policy

Related Document
Frame of Image inflation determination 2. impacts of monetary policy on fiscal choices are small
Policy Institution Arrangements
Separation
stems from fears government will pressure central bank to monetize
Also
relies on two highly questionable assumptions
1. fiscal policy has little effect on inflation determination 2. impacts of monetary policy on fiscal choices are small
1.
is simply false
P at least an equal par tner with MP in determining inflation—a key insight of policy interactions literature
F
Policy Institution Arrangements
Separation
stems from fears government will pressure central bank to monetize
Also
relies on two highly questionable assumptions
1. fiscal policy has little effect on inflation determination 2. impacts of monetary policy on fiscal choices are small
1.
is simply false
P at least an equal par tner with MP in determining inflation—a key insight of policy interactions literature
F
2.
ignores effects of price level and bond prices on value of nominal debt
b
oth theoretically & empirical significant
Hall & Sargent: Impor tance of Inflation
U.S.
high-debt era 1945 to 1974: debt-GDP fell from 97.2% to 16.9%
f that 80.3%, 15.8% due to negative real returns via inflation primarily hit long-ter m bondholders
o
Hall & Sargent: Impor tance of Inflation
U.S.
high-debt era 1945 to 1974: debt-GDP fell from 97.2% to 16.9%
f that 80.3%, 15.8% due to negative real returns via inflation primarily hit long-ter m bondholders
o
U.S.
1974
l
low-debt era to 1981: debt-GDP rose from 16.9% to 19.9%
on


Full Text
Title Inflation's role in optimal monetary-fiscal policy
Similar Titles
Material Type Proceedings
Author(English)

Leeper, Eric M.; Zhou, Xuan

Publisher

[Seoul]:Indiana University

Date 2013-08
Pages 50
Subject Country United States(Americas)
Language English
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding KDI; KDI School