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Unsustainable fiscal policy: implications for monetary policy

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  • Nicholas Haltom
  • John A. Weinberg

Abstract

Federal government debt held by the public reached 67.7 percent of gross domestic product in 2011, and trends point to large budget deficits for many years to come. In this essay, economics writer Renee Haltom and research director John Weinberg explore the implications for monetary policy if the United States ever approached its \\"fiscal limit.\\" In that scenario, the Federal Reserve might face pressure to produce inflation revenue. The authors conclude that the United States must avoid this scenario by placing fiscal policy on a more sustainable path

Suggested Citation

  • Nicholas Haltom & John A. Weinberg, 2011. "Unsustainable fiscal policy: implications for monetary policy," Annual Report, Federal Reserve Bank of Richmond, pages 5-19.
    • Handle: RePEc:fip:fedrar:y:2011:p:5-19
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    References listed on IDEAS

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    1. John H. Cochrane, 1999. "A Frictionless View of US Inflation," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 323-421, National Bureau of Economic Research, Inc.
    2. Nadezhda Malysheva & John R. Walter, 2010. "How large has the federal financial safety net become?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 96(3Q), pages 273-290.
    3. George J. Hall & Thomas J. Sargent, 2011. "Interest Rate Risk and Other Determinants of Post-WWII US Government Debt/GDP Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(3), pages 192-214, July.
    4. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 381-399.
    5. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
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    Cited by:

    1. Cyrus MUTUKU, 2015. "Assessing Fiscal Policy Cyclicality and Sustainability: A Fiscal Reaction Function for Kenya," Journal of Economics Library, KSP Journals, vol. 2(3), pages 173-191, September.

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