Under a discretionary regime the monetary authority makes no commitments about future money and prices. Then, if surprise inflation conveys economic benefits and if people form expectations rationally, it turns out that the equilibrium involves high and variable monetary growth and inflation....

The British data from the early 1700s through World War I provide an unmatched opportunity for studying the effects of temporary changes in government purchases. In this paper I examine the effects of these changes on interest rates, the quantity of money, the price level, and budget deficits....

The national accounts include the Fed's payments to the Treasury as a component of corporate taxes. These payments constituted 22% of reported corporate profits taxes in 1981. This paper discusses alternative concepts of inflationary finance. Measures for these concepts are reported for the...

Previous models of rules versus discretion are extended to include uncertainty about the policymaker's "type." When people observe low inflation, they raise the possibility that the policymaker is committed to low inflation (type 1). This enhancement of reputation gives the uncommitted...

Shifts between current taxation and debt issue alter the timing of taxes, which induces a variety of intertemporal substitution effects. In some circumstances the minimization of excess budget costs would entail stabilization of expected overall tax rates over time. The first section of the...

The paper develops a model in which targeting of the nominal interest rate is a reasonable guide for monetary policy. Expected real interest rates and output are exogenous with respect to monetary variables, and the central bank ends up influencing nominal interest rates by altering expected...

The tax-smoothing theory suggests that deficits would respond particularly to recession, temporarily high government spending, and anticipated inflation. My empirical estimates indicate that a relation of this type is reasonably stable in the U.S. since at least 1920. In particular, the...

Persistent budget deficits have increased economists' interest in theories and evidence about fiscal policy. This paper develops the Ricardian approach and contrasts it with standard models. The discussion considers from major theoretical objections to Ricardian equivalence-finite lifetimes,...

Natural-rate models suggest that the systematic parts of monetary policy will not have important consequences for the business cycle. Nevertheless, we often observe high and variable rates of monetary growth, and a tendency for monetary authorities to pursue countercyclical policies. This...

In a discretionary regime the monetary authority can print more money and create more inflation than people expect. But, although these inflation surprises can have some benefits, they cannot arise systematically in equilibrium when people understand the policymaker's incentives and form their...