Some Even More Unpleasant Monetarist Arithmetic
AbstractDoes monetizing a deficit always result in a higher rate of inflation than bond financing the same deficit? T. J. Sargent and N. Wallace (1981) produced conditions under which the answer was negative ('unpleasant monetarist arithmetic'). Subsequent authors have challenged the empirical validity of these conditions. The authors develop a model similar to that of Sargent and Wallace and modify it to allow for financial intermediation. In the presence of reserve requirements, unpleasant arithmetic arises even when the real rate of growth exceeds the real return on bonds. Moreover, under empirically plausible restrictions, there exists a unique equilibrium; no Laffer curve considerations arise.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 31 (1998)
Issue (Month): 3 (August)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Other versions of this item:
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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