This paper begins with a review of the current fiscal situation and the causes of its recent deterioration. As a guide to possible policy actions, it provides extensive estimates of past responses of revenues and expenditures at the federal and state and local level. Estimates at the federal...

Standard discussions of flexible inflation targeting as an optimal monetary policy abstract completely from the consequences of monetary policy for the government budget. But at least some of the countries now adopting inflation targeting have substantial difficulty in controlling fiscal...

Prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short-term nominal interest rate renders open-market operations ineffective for achieving macroeconomic stabilization goals. In an earlier paper, we showed that this reasoning does...

In previous work (Eggertsson and Woodford, 2003), we characterized the optimal conduct of monetary policy when a real disturbance causes the natural rate of interest to be temporarily negative, so that the zero lower bound on nominal interest rates binds, and showed that commitment to a...

It is shown that the price level remains determinate even in the case of two kinds of radical money supply endogeneity -- an interest rate peg by the central bank, and a 'free banking' regime -- that are commonly supposed to imply loss of control of the price level. Price level determination...