Showing 1 - 10 of 42
Our current inflation stemmed from a fiscal shock. The Fed is slow to react. Why? Will the Fed's slow reaction spur more inflation? I write a simple model that encompasses the Fed's mild projections and its slow reaction, and traditional views that inflation will surge without swift rate rises....
Persistent link: https://www.econbiz.de/10013210124
I construct a simple model with sticky prices and interest rate targets, closed by fiscal theory of the price level with long-term debt and fiscal and monetary policy rules. Fiscal surpluses rise following periods of deficit, to repay accumulated debt, but surpluses do not respond to arbitrary...
Persistent link: https://www.econbiz.de/10012479269
I use the valuation equation of government debt to understand fiscal and monetary policy in and following the great recession of 2008-2009, to think about fiscal pressures on US inflation, and what sequence of events might surround such an inflation. I emphasize that a fiscal inflation can come...
Persistent link: https://www.econbiz.de/10012462568
The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze long-term debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news...
Persistent link: https://www.econbiz.de/10012472043
The fiscal theory of the price level can describe monetary policy. Governments can set interest rate targets and thereby affect inflation, with no change in fiscal surpluses. The same basic mechanism describes interest rate targets, forward guidance, open market operations, and quantitative...
Persistent link: https://www.econbiz.de/10012455701
I analyze monetary policy with interest on reserves and a large balance sheet. I show that conventional theories do not determine inflation in this regime, so I base the analysis on the fiscal theory of the price level. I find that monetary policy can peg the nominal rate, and determine expected...
Persistent link: https://www.econbiz.de/10012458052
The global economy has a chronic shortage of safe assets which lies behind many recent macroeconomic imbalances. This paper provides a simple model of the Safe Asset Mechanism (SAM), its recessionary safety traps, and its policy antidotes. Safety traps share many common features with...
Persistent link: https://www.econbiz.de/10012459925
The fiscal theory states that inflation adjusts so that the real value of government debt equals the present value of real primary surpluses. Monetary policy remains important. The central bank can set an interest rate target, which determines the path of expected inflation, while news about the...
Persistent link: https://www.econbiz.de/10013361983
that the distribution of measured consumption growth rates should be independent of variables that are exogenous to the … individual consumer when we allow for measurement error in consumption and for variation in preferences. This proposition is … tested by cross sectional regressions of individual consumption growth on a variety of variables that should not be …
Persistent link: https://www.econbiz.de/10012476422
In this paper I argue that the current core of macroeconomics--by which I mainly mean the so-called dynamic stochastic general equilibrium approach--has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the...
Persistent link: https://www.econbiz.de/10012462227