Monetary Policy Arithmetic: Some Recent Contributions
AbstractSargent and Wallace (1981) study the feasibility of a bond-financed increase in government spending. In their "unpleasant monetarist arithmetic," Sargent and Wallace show how using bonds to finance a permanent deficit today may necessitate faster money growth in the future, yielding higher inflation today. The logic behind this spectacular result is predicated on the satisfaction of one crucial condition: the real interest rate offered on bonds has to exceed the real growth rate of the economy. Joydeep Bhattacharya and Joseph Haslag review some recent contributions to the literature on the subject in light of the contentious nature of this stricture. The authors derive the unpleasant monetarist arithmetic result by employing a weaker set of necessary conditions than those Sargent-Wallace use. In addition, the authors consider the possibility of financing the deficit by changing reserve requirements instead of raising money growth rates. Interestingly, a pleasant version of the financing arithmetic emerges.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10388.
Date of creation: 01 Jul 1999
Date of revision:
Publication status: Published in Economic and Financial Review, Third Quarter 1999,, pp. 26-36
Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
Other versions of this item:
- Joydeep Bhattacharya & Joseph H. Haslag, 1999. "Monetary policy arithmetic: some recent contributions," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q III, pages 26-36.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Champ,Bruce & Freeman,Scott & Haslag,Joseph, 2011.
"Modeling Monetary Economies,"
Cambridge University Press, number 9781107003491, December.
- Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 1998.
"Is the Price Level Determined by the Needs of Fiscal Solvency?,"
NBER Working Papers
6471, National Bureau of Economic Research, Inc.
- Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2001. "Is the Price Level Determined by the Needs of Fiscal Solvency?," American Economic Review, American Economic Association, vol. 91(5), pages 1221-1238, December.
- Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1998. "Is the Price Level Determined by the Needs of Fiscal Solvency?," CEPR Discussion Papers 1772, C.E.P.R. Discussion Papers.
- Preston J. Miller & Thomas J. Sargent, 1984. "A reply to Darby," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
- Charles T. Carlstrom & Timothy S. Fuerst, 2000. "The fiscal theory of the price level," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 22-32.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Bhattacharya, Joydeep & Guzman, Mark G. & Smith, Bruce D., 1998.
"Some Even More Unpleasant Monetarist Arithmetic,"
Staff General Research Papers
5084, Iowa State University, Department of Economics.
- Marco Espinosa & Steven Russell, 1998. "Can a Policy of Higher Inflation Reduce Real Interests in the Long Run?," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 92-103, February.
- Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
- Bhattacharya, Joydeep & Kudoh, N, 2002.
"Tight Money Policies and Inflation Revisited,"
Staff General Research Papers
5085, Iowa State University, Department of Economics.
- Michael R. Darby, 1984.
"Some Pleasant Monetarist Arithmetic,"
NBER Working Papers
1295, National Bureau of Economic Research, Inc.
- Thomas M. Supel & Richard M. Todd, 1984. "Should currency be priced like cars?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
- Joseph H. Haslag & Joydeep Bhattacharya, 1999. "Seigniorage in a neoclassical economy: some computational results," Working Papers 9901, Federal Reserve Bank of Dallas.
- Andrew B. Abel, 1992. "Can the government roll over its debt forever?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-18.
- Freeman, Scott, 1987. "Reserve requirements and optimal seigniorage," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 307-314, March.
- Rao Aiyagari, S. & Gertler, Mark, 1985. "The backing of government bonds and monetarism," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 19-44, July.
- Jan Libich & Andrew Hughes Hallett & Petr Stehlik, 2007.
"Monetary And Fiscal Policy Interaction With Various Degrees And Types Of Commitment,"
CAMA Working Papers
2007-21, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Hughes Hallett, Andrew & Libich, Jan & Stehlík, Petr, 2007. "Monetary and Fiscal Policy Interaction with Various Degrees and Types of Commitment," CEPR Discussion Papers 6586, C.E.P.R. Discussion Papers.
- Joydeep Bhattacharya & Joseph H. Haslag, 2000.
"Reliance, composition, and inflation,"
Economic and Financial Policy Review,
Federal Reserve Bank of Dallas, issue Q IV, pages 20-28.
- Jan Libich & Petr Stehlik, 2008. "Fiscal Rigidity In A Monetary Union: The Calvo Timing And Beyond," CAMA Working Papers 2008-22, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Kudoh, Noritaka, 2005. "Monetary policy arithmetic for a deflationary economy," Economics Letters, Elsevier, vol. 87(2), pages 161-167, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stephanie Bridges) The email address of this maintainer does not seem to be valid anymore. Please ask Stephanie Bridges to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.