Comment on T. J. Sargent and N. Wallace: Some Unpleasant Monetarist Arithmetic

Willem Buiter

A chapter in Monetarism in the United Kingdom, 1984, pp 42-60 from Palgrave Macmillan

Abstract: Abstract Sargent and Wallace (S-W) show that, even when inflation is prima facie a strictly monetary phenomenon — prices are flexible, markets clear and velocity is constant — inflation is, in the long run, a fiscal phenomenon. This follows from the government budget constraint and the existence of an upper bound on the real per capita stock of interest-bearing public debt held by the private sector. Together these ensure that in the long run the growth of the money stock is governed by the fiscal deficit, if we assign to the fiscal authorities the role of Stackelberg leaders and to the monetary authorities that of Stackelberg followers.

Keywords: Public Sector; Monetary Policy; Nominal Interest Rate; Monetary Base; Current Account Surplus (search for similar items in EconPapers)
Date: 1984
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DOI: 10.1007/978-1-349-06284-3_3

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