Understanding policy in the great recession: Some unpleasant fiscal arithmetic

John Cochrane

European Economic Review, 2011, vol. 55, issue 1, 2-30

Abstract: I use the valuation equation of government debt to understand fiscal and monetary policy in and following the great recession of 2008-2009. I also examine policy alternatives to avoid deflation, and how fiscal pressures might lead to inflation. I conclude that the central bank may be almost powerless to avoid deflation or inflation; that an eventual fiscal inflation can come well before large deficits or monetization are realized, and that it is likely to come with stagnation rather than a boom.

Keywords: Inflation; Deflation; Fiscal; theory; of; the; price; level (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (169)

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Working Paper: Understanding Policy in the Great Recession: Some Unpleasant Fiscal Arithmetic (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:55:y:2011:i:1:p:2-30

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