The Dire Effects of the Lack of Monetary and Fiscal Coordination /
Bianchi, Francesco.
The Dire Effects of the Lack of Monetary and Fiscal Coordination / Francesco Bianchi, Leonardo Melosi. - Cambridge, Mass. National Bureau of Economic Research 2017. - 1 online resource: illustrations (black and white); - NBER working paper series no. w23605 . - Working Paper Series (National Bureau of Economic Research) no. w23605. .
July 2017.
What happens if the government's willingness to stabilize a large stock of debt is waning, while the central bank is adamant about preventing a rise in inflation? The large fiscal imbalance brings about inflationary pressures, triggering a monetary tightening, further debt accumulation, and additional inflationary pressure. Thus, the economy will go through a spiral of higher inflation, output contraction, and further debt accumulation. A coordinated commitment to inflate away the portion of debt resulting from a large recession leads to better macroeconomic outcomes by separating the issue of long-run fiscal sustainability from the need for short-run fiscal stabilization. This strategy can also be used to rule out episodes in which the central bank becomes constrained by the zero lower bound.
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Mode of access: World Wide Web.
The Dire Effects of the Lack of Monetary and Fiscal Coordination / Francesco Bianchi, Leonardo Melosi. - Cambridge, Mass. National Bureau of Economic Research 2017. - 1 online resource: illustrations (black and white); - NBER working paper series no. w23605 . - Working Paper Series (National Bureau of Economic Research) no. w23605. .
July 2017.
What happens if the government's willingness to stabilize a large stock of debt is waning, while the central bank is adamant about preventing a rise in inflation? The large fiscal imbalance brings about inflationary pressures, triggering a monetary tightening, further debt accumulation, and additional inflationary pressure. Thus, the economy will go through a spiral of higher inflation, output contraction, and further debt accumulation. A coordinated commitment to inflate away the portion of debt resulting from a large recession leads to better macroeconomic outcomes by separating the issue of long-run fiscal sustainability from the need for short-run fiscal stabilization. This strategy can also be used to rule out episodes in which the central bank becomes constrained by the zero lower bound.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.