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Comment on T. J. Sargent and N. Wallace: Some Unpleasant Monetarist Arithmetic

In: Monetarism in the United Kingdom

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  • Willem H. Buiter

Abstract

Sargent and Wallace (S-W) show that, even when inflation is prima facie a strictly monetary phenomenon — prices are flexible, markets clear and velocity is constant — inflation is, in the long run, a fiscal phenomenon. This follows from the government budget constraint and the existence of an upper bound on the real per capita stock of interest-bearing public debt held by the private sector. Together these ensure that in the long run the growth of the money stock is governed by the fiscal deficit, if we assign to the fiscal authorities the role of Stackelberg leaders and to the monetary authorities that of Stackelberg followers.

Suggested Citation

  • Willem H. Buiter, 1984. "Comment on T. J. Sargent and N. Wallace: Some Unpleasant Monetarist Arithmetic," Palgrave Macmillan Books, in: Brian Griffiths & Geoffrey E. Wood (ed.), Monetarism in the United Kingdom, pages 42-60, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-06284-3_3
    DOI: 10.1007/978-1-349-06284-3_3
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    References listed on IDEAS

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    1. Buiter, Willem H, 1981. "The Superiority of Contingent Rules over Fixed Rules in Models with Rational Expectations," Economic Journal, Royal Economic Society, vol. 91(363), pages 647-670, September.
    2. P J Forsyth & J A Kay, 1980. "The economic implications of North Sea Oil Revenues," Fiscal Studies, Institute for Fiscal Studies, vol. 1(3), pages 1-28, July.
    3. Willem H. Buiter, 1981. "Macroeconometric Modelling for Policy Evaluation and Design," NBER Technical Working Papers 0013, National Bureau of Economic Research, Inc.
    4. Thomas J. Sargent & Neil Wallace, 1984. "Some Unpleasant Monetarist Arithmetic," Palgrave Macmillan Books, in: Brian Griffiths & Geoffrey E. Wood (ed.), Monetarism in the United Kingdom, pages 15-41, Palgrave Macmillan.
    5. Thomas J. Sargent, 1981. "Stopping moderate inflations: the methods of Poincaré and Thatcher," Working Papers 1, Federal Reserve Bank of Minneapolis.
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    Cited by:

    1. Sweder van Wijnbergen, 1991. "Fiscal Deficits, Exchange Rate Crises and Inflation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 81-92.
    2. Willem H. Buiter, 1984. "Measuring Aspects of Fiscal and Financial Policy," NBER Working Papers 1332, National Bureau of Economic Research, Inc.
    3. Buiter, Willem H., 1986. "Fiscal Prerequisites for a Viable Managed Exchange Rate Regime: A Non-Technical Eclectic Introduction," CEPR Discussion Papers 129, C.E.P.R. Discussion Papers.

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