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Fiscal consequences of inflationary policies

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  • Kobayashi, Keiichiro

Abstract

In this paper we examine from a theoretical perspective the policy proposals made by Krugman (1998a) for the Japanese economy. The main finding is that the government's budget constraint implies that in order to realize long-term inflation, it is insufficient to just have the central bank issue currency; the reduction of the fiscal surplus is also necessary. In addition, I modify the Krugman model to a three-period model and show that in circumstances in which the nominal interest rate is zero, temporary deflation may be aggravated if fiscal policies remain unchanged and the central bank increases the money supply.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 19 (2005)
Issue (Month): 3 (September)
Pages: 386-393

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Handle: RePEc:eee:jjieco:v:19:y:2005:i:3:p:386-393

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Web page: http://www.elsevier.com/locate/inca/622903

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References

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  1. Krugman, Paul, 2000. "Thinking About the Liquidity Trap," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 221-237, December.
  2. Auerbach, Alan J. & Obstfeld, Maurice, 2012. "The Case for Open-Market Purchases in a Liquidity Trap," Center for International and Development Economics Research, Working Paper Series qt84s7d8c8, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  3. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Avoiding Liquidity Traps," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 535-563, June.
  4. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  5. Michael Woodford, 2001. "Fiscal Requirements for Price Stability," NBER Working Papers 8072, National Bureau of Economic Research, Inc.
  6. Gauti B. Eggertsson & Michael Woodford, 2003. "Optimal Monetary Policy in a Liquidity Trap," NBER Working Papers 9968, National Bureau of Economic Research, Inc.
  7. John H. Cochrane, 2000. "Money as Stock: Price Level Determination with no Money Demand," NBER Working Papers 7498, National Bureau of Economic Research, Inc.
  8. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. A fiscal collapse is imminent – when? – sometime!
    by bill in Bill Mitchell – billy blog on 2012-04-13 06:39:59

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