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Bernanke's paradox: can he reconcile his position on the federal budget with his recent charge to prevent deflation?

Pavlina Tcherneva

Journal of Post Keynesian Economics, 2011, vol. 33, issue 3, 411-434

Abstract: This paper examines Federal Reserve Chairman Ben Bernanke's recipe for deflation fighting and the specific policy actions he took in the aftermath of the 2008 financial crisis. Both in his academic and policy work, Bernanke has made the case that monetary policy is able to stem deflationary forces largely because of its "fiscal components," and that governments such as those in the United States or Japan face no constraints in financing these fiscal components. On the other hand, he has recently expressed strong concerns with the size of the federal budget deficit, calling for its reversal in the name of financial sustainability. This paper argues that these positions are fundamentally at odds with each other and resolves the paradox by arguing on theoretical and technical grounds that there are no fundamental differences in financing conventional government spending programs and what Bernanke considers to be the fiscal components of monetary policy.

Keywords: Bernanke; crowding out; deflation; financial sustainability; monetary policy (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (14)

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Working Paper: Bernanke’s Paradox: Can He Reconcile His Position on the Federal Budget with His Recent Charge to Prevent Deflation? (2010) Downloads
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