Shotgun Wedding: Fiscal and Monetary Policy
Marco Bassetto and
Thomas Sargent ()
No 599, Staff Report from Federal Reserve Bank of Minneapolis
This paper 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 conform the theoretical insight that lines of authority between a Treasury and a Central Bank can be ambiguous, obscure, and fragile.
Keywords: Government budget; Central Bank; Nominal anchor; Monetary-fiscal coordination (search for similar items in EconPapers)
JEL-codes: E61 E62 E63 E52 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:87731
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