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Some Pleasant Monetarist Arithmetic

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  • Michael R. Darby

Abstract

Contrary to the conclusion of Sargent and Wallace, it is possible to exogenously and independently vary monetary and fiscal policy and retain steady-state equlibrium in economies like the United States. In particular,the central bank is not forced to monetize increased deficits either now or in the future. This conclusion is based on the fact that the real after-tax yield on government bonds is considerably less than the growth rate of real income except during brief disinflationary periods.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1295.

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Date of creation: Oct 1984
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Publication status: published as Darby, Michael R. "Some Pleasant Monetarist Arithmetic." Federal Reserve Bank of Minneapolis Quarterly Review, Vol.8, No. 2, (Spring 1984), pp. 15-2 0.
Handle: RePEc:nbr:nberwo:1295

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  1. White, Betsy Buttrill, 1978. "Empirical Tests of the Life Cycle Hypothesis," American Economic Review, American Economic Association, American Economic Association, vol. 68(4), pages 547-60, September.
  2. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, Elsevier, vol. 2(4), pages 319-337.
  3. Preston J. Miller, 1983. "Budget deficit mythology," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall.
  4. Darby, Michael R, 1975. "The Financial and Tax Effects of Monetary Policy on Interest Rates," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 13(2), pages 266-76, June.
  5. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall.
  6. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  7. James Tobin & Willem H. Buiter, 1974. "Long Run Effects of Fiscal and Monetary Policy on Aggregate Demand," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 384, Cowles Foundation for Research in Economics, Yale University.
  8. Laurence J. Kotlikoff & Lawrence H. Summers, 1980. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc.
  9. David, Paul A & Scadding, John L, 1974. "Private Savings: Ultrarationality, Aggregation, and "Denison's Law."," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(2), pages 225-49, Part I, M.
  10. Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, Elsevier, vol. 9(3), pages 325-352.
  11. Michael R. Darby & James R. Lothian, 1982. "British Economic Policy Under Margaret Thatcher: A Midterm Examination," UCLA Economics Working Papers, UCLA Department of Economics 253, UCLA Department of Economics.
  12. Kochin, Levis A, 1974. "Are Future Taxes Anticipated by Consumers? Comment," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 6(3), pages 385-94, August.
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  1. Why the Cost of the Bailout Doesnâ??t Matter, part 1
    by knzn in Economics and ... on 2008-09-21 15:14:00
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Cited by:
  1. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2008. "Fiscal-monetary policy coordination and debt management: a two-stage analysis," Empirica, Springer, Springer, vol. 35(4), pages 433-448, September.
  2. Patricia S. Pollard, 1993. "Central bank independence and economic performance," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 21-36.
  3. S. Rao Aiyagari, 1985. "Deficits, interest rates, and the tax distribution," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win.
  4. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics, EconWPA 0504024, EconWPA.
  5. Peter J. Stemp & William M. Scarth, . "Zero Inflation Targets: Central Bank Commitment and Fiscal Policy Outcomes," Computing in Economics and Finance 1996, Society for Computational Economics _055, Society for Computational Economics.
  6. Thomas J. Finn, 1988. "A Note on the Real Federal Deficit," Eastern Economic Journal, Eastern Economic Association, vol. 14(3), pages 263-270, Jul-Sep.
  7. Marco Espinosa-Vega & Steven Russell, 1998. "The long-run real effects of monetary policy: Keynesian predictions from a neoclassical model," Working Paper, Federal Reserve Bank of Atlanta 98-6, Federal Reserve Bank of Atlanta.
  8. Marco Espinosa-Vega & Steven Russell, 2001. "Stability of steady states in a model of pleasant monetarist arithmetic," Working Paper, Federal Reserve Bank of Atlanta 2001-20, Federal Reserve Bank of Atlanta.
  9. Bhattacharya, Joydeep & Haslag, Joseph, 1999. "Monetary Policy Arithmetic: Some Recent Contributions," Staff General Research Papers 10388, Iowa State University, Department of Economics.
  10. Alpha C. Chiang & Stephen M. Miller, 1998. "The Perception of Government Bonds and Money as Net Wealth: An Integrated Approach," Eastern Economic Journal, Eastern Economic Association, vol. 24(4), pages 435-448, Fall.
  11. Daniel L. Thornton, 2010. "Monetizing the debt," Economic Synopses, Federal Reserve Bank of St. Louis.
  12. Steven Russell & Marco Espinosa, 1990. "The inflationary effects of the use of reserve ratio reductions, or open market purchases, to reduce market interest rates: a theoretical comparison," Working Papers, Federal Reserve Bank of St. Louis 1990-006, Federal Reserve Bank of St. Louis.
  13. José Ramalho, 1990. "The steady-state budget constraint and the integration of european financial markets: an arithmetical exercise," BIS Working Papers 14, Bank for International Settlements.
  14. Richard G. Sheehan, 1985. "The federal reserve reaction function: does debt growth influence monetary policy?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 24-33.

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