Is It Time for Some Unpleasant Monetarist Arithmetic?
Sargent and Wallace (1981) published "Some Unpleasant Monetarist Arithmetic" 40 years ago. Their central message was that a central bank may not have the power to determine the long-run rate of inflation without fiscal support. In a policy regime where the fiscal authority is non-Ricardian...
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| Veröffentlicht in: | Review 2021-01, Vol.103 (3), p.315-332 |
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| description | Sargent and Wallace (1981) published "Some Unpleasant Monetarist Arithmetic" 40 years ago. Their central message was that a central bank may not have the power to determine the long-run rate of inflation without fiscal support. In a policy regime where the fiscal authority is non-Ricardian, an attempt on the part of the central bank to lower inflation may end up backfiring. I develop a structural model to illustrate this result through the use of a diagram. In addition, I use the model to explain how low inflation, low interest rates, and high primary budget deficits can coexist. I also use the model to explain why it is easier for a central bank to lower inflation than to raise it. I conclude with some recommendations for state-contingent monetary policy. |
| doi_str_mv | 10.20955/r.103.315-32 |
| format | Article |
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| ispartof | Review, 2021-01, Vol.103 (3), p.315-332 |
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| language | eng |
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| source | PAIS Index; Elektronische Zeitschriftenbibliothek - Frei zugängliche E-Journals; EBSCOhost Business Source Complete |
| subjects | Arithmetic Banking Budget deficits Central banks Federal Reserve monetary policy Fiscal policy GDP Gross Domestic Product Inflation Inflation rates Interest rates Monetary policy Price levels Treasuries Unpleasant |
| title | Is It Time for Some Unpleasant Monetarist Arithmetic? |
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