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Some Pleasant Monetarist Arithmetic

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Michael R. Darby

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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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Handle: RePEc:nbr:nberwo:1295

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References listed on IDEAS
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.:
  1. James Tobin & Willem H. Buiter, 1974. "Long Run Effects of Fiscal and Monetary Policy on Aggregate Demand," Cowles Foundation Discussion Papers 384, Cowles Foundation, Yale University. [Downloadable!]
  2. Laurence J. Kotlikoff & Lawrence H. Summers, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Darby, Michael R, 1975. "The Financial and Tax Effects of Monetary Policy on Interest Rates," Economic Inquiry, Oxford University Press, vol. 13(2), pages 266-76, June.
  4. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
  5. Michael R. Darby & James R. Lothian, 1982. "British Economic Policy Under Margaret Thatcher: A Midterm Examination," UCLA Economics Working Papers 253, UCLA Department of Economics. [Downloadable!]
    Other versions:
  6. David, Paul A & Scadding, John L, 1974. "Private Savings: Ultrarationality, Aggregation, and "Denison's Law."," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 225-49, Part I, M. [Downloadable!] (restricted)
  7. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  8. White, Betsy Buttrill, 1978. "Empirical Tests of the Life Cycle Hypothesis," American Economic Review, American Economic Association, vol. 68(4), pages 547-60, September. [Downloadable!] (restricted)
  9. Preston J. Miller, 1983. "Budget deficit mythology," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
  10. Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 325-352. [Downloadable!] (restricted)
  11. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Patricia S. Pollard, 1993. "Central bank independence and economic performance," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 21-36. [Downloadable!]
  2. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2008. "Fiscal-monetary policy coordination and debt management: a two-stage analysis," Empirica, Springer, vol. 35(4), pages 433-448, September. [Downloadable!] (restricted)
  3. 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. [Downloadable!]
    Other versions:
  4. 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 1990-006, Federal Reserve Bank of St. Louis. [Downloadable!]
  5. 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. [Downloadable!]
  6. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2004. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Working Papers 74, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
    Other versions:
  7. Daniel L. Thornton, 1984. "Monetizing the debt," Review, Federal Reserve Bank of St. Louis, issue Dec, pages 30-43. [Downloadable!]
  8. 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. [Downloadable!]
  9. 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. [Downloadable!]
  10. Marco Espinosa-Vega & Steven Russell, 1998. "The long-run real effects of monetary policy: Keynesian predictions from a neoclassical model," Working Paper 98-6, Federal Reserve Bank of Atlanta. [Downloadable!]
  11. S. Rao Aiyagari, 1985. "Deficits, interest rates, and the tax distribution," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win. [Downloadable!]
  12. Marco Espinosa-Vega & Steven Russell, 2001. "Stability of steady states in a model of pleasant monetarist arithmetic," Working Paper 2001-20, Federal Reserve Bank of Atlanta. [Downloadable!]
  13. Alpha C. Chiang & Stephen M. Miller, 1998. "The Perception of Government Bonds and Money as Net Wealth: An Integrated Approach," Working papers 1998-05, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  14. Peter J. Stemp & William M. Scarth, . "Zero Inflation Targets: Central Bank Commitment and Fiscal Policy Outcomes," Computing in Economics and Finance 1996 _055, Society for Computational Economics. [Downloadable!]
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