Monetary policy arithmetic: some recent contributions
Sargent 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.
Volume (Year): (1999)
Issue (Month): Q III ()
|Contact details of provider:|| Web page: http://www.dallasfed.org/|
More information through EDIRC
|Order Information:|| Email: |
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.:
- Bhattacharya, Joydeep & Kudoh, N, 2002.
"Tight Money Policies and Inflation Revisited,"
Staff General Research Papers
5085, Iowa State University, Department of Economics.
- Bruce Smith & J. Bhattacharya & Mark Guzman, 1998.
"Some Even More Unpleasant Monetarist Arithmetic,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 31(3), pages 596-623, August.
- Freeman, Scott, 1987. "Reserve requirements and optimal seigniorage," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 307-314, March.
- repec:cup:cbooks:9781107003491 is not listed on IDEAS
- Joseph H. Haslag & Joydeep Bhattacharya, 1999. "Seigniorage in a neoclassical economy: some computational results," Working Papers 9901, Federal Reserve Bank of Dallas.
- 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.
- 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.
- 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.
- 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.
- 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.
- repec:cup:cbooks:9780521177009 is not listed on IDEAS
- 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.
- 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.
- Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
- Thomas M. Supel & Richard M. Todd, 1984. "Should currency be priced like cars?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
- Michael R. Darby, 1984.
"Some pleasant monetarist arithmetic,"
Federal Reserve Bank of Minneapolis, issue Spr.
- Andrew B. Abel, 1992. "Can the government roll over its debt forever?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-18.
- Preston J. Miller & Thomas J. Sargent, 1984. "A reply to Darby," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
When requesting a correction, please mention this item's handle: RePEc:fip:fedder:y:1999:i:qiii:p:26-36. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Delia Rodriguez)The email address of this maintainer does not seem to be valid anymore. Please ask Delia Rodriguez to update the entry or send us the correct address
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.