Shotgun Wedding: Fiscal and Monetary Policy

Marco Bassetto and Thomas Sargent

Annual Review of Economics, 2020, vol. 12, issue 1, 659-690

Abstract: This review describes interactions between monetary and fiscal policies that affect equilibrium price levels and interest rates by critically surveying theories about (a) optimal anticipated inflation, (b) optimal unanticipated inflation, and (c) conditions that secure a nominal anchor in the sense of a unique price level path. We contrast incomplete theories whose inputs are budget-feasible sequences of government-issued bonds and money with complete theories whose inputs are bond/money strategies described as sequences of functions that map time t histories into time t government actions. We cite historical episodes that confirm the theoretical insight that lines of authority between a Treasury and a central bank can be ambiguous, obscure, and fragile.

Date: 2020
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Working Paper: Shotgun Wedding: Fiscal and Monetary Policy (2020)
Working Paper: Shotgun Wedding: Fiscal and Monetary Policy (2020)
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DOI: 10.1146/annurev-economics-091319-050022

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