Bernanke's paradox: can he reconcile his position on the federal budget with his recent charge to prevent deflation?
AbstractThis paper examines Federal Reserve Chairman Ben Bernanke's recipe for deflation fighting and the specific policy actions he took in the aftermath of the 2008 financial crisis. Both in his academic and policy work, Bernanke has made the case that monetary policy is able to stem deflationary forces largely because of its "fiscal components," and that governments such as those in the United States or Japan face no constraints in financing these fiscal components. On the other hand, he has recently expressed strong concerns with the size of the federal budget deficit, calling for its reversal in the name of financial sustainability. This paper argues that these positions are fundamentally at odds with each other and resolves the paradox by arguing on theoretical and technical grounds that there are no fundamental differences in financing conventional government spending programs and what Bernanke considers to be the fiscal components of monetary policy.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.
Volume (Year): 33 (2011)
Issue (Month): 3 (April)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348
Bernanke; crowding out; deflation; financial sustainability; monetary policy;
Other versions of this item:
- Pavlina R. Tcherneva, 2010. "Bernanke’s Paradox: Can He Reconcile His Position on the Federal Budget with His Recent Charge to Prevent Deflation?," Economics Working Paper Archive wp_636, Levy Economics Institute.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
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