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Monetary Policy in the Transition to a Zero Federal Deficit

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Author Info

  • Christopher F. Baum

    ()
    (Boston College)

  • Meral Karasulu

    ()
    (Bogazici University)

Abstract

In the United States, eradication of persistent federal deficits has won broad bipartisan support. At the same time, political pressures have mounted to strengthen the Federal Reserve's explicit concern with price stability. Proposals under consideration would require a much narrower focus on the part of Fed policymakers, and could be interpreted as targeting the price level rather than a negligible rate of inflation. The deficit-reduction and price-stability policies should be analysed in combination, as reductions in the real interest rate triggered by lower deficits will have an impact on optimal monetary policy with anti-inflation and stabilization objectives.

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File URL: http://fmwww.bc.edu/EC-P/wp363.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 363.

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Length: 32 pages
Date of creation: 01 Apr 1997
Date of revision:
Publication status: Forthcoming in Focus on Fiscal Policy, Frank Columbus, ed., Hauppage: Nova Science Publishers
Handle: RePEc:boc:bocoec:363

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Web page: http://fmwww.bc.edu/EC/
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Keywords: monetary policy; deficit reduction;

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  1. Lars E. O. Svensson, 1996. "How should monetary policy respond to shocks while maintaining long-run price stability? Conceptual issues (commentary)," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 209-227.
  2. Sharon Kozicki & P.A. Tinsley, 1997. "Shifting endpoints in the term structure of interest rates," Research Working Paper 97-08, Federal Reserve Bank of Kansas City.
  3. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  4. Athanasios Orphanides & David W. Wilcox, 1996. "The opportunistic approach to disinflation," Finance and Economics Discussion Series 96-24, Board of Governors of the Federal Reserve System (U.S.).
  5. Baum, Christopher F & Karasulu, Meral, 1998. "Modelling Federal Reserve Discount Policy," Computational Economics, Society for Computational Economics, vol. 11(1-2), pages 53-70, April.
  6. William Poole, 1994. "Monetary aggregates targeting in a low-inflation economy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 87-135.
  7. Bennett T. McCallum, 1994. "Monetary Policy Rules and Financial Stability," NBER Working Papers 4692, National Bureau of Economic Research, Inc.
  8. repec:sae:niesru:v:145:y::i:1:p:43-63 is not listed on IDEAS
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