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Bernanke’s Paradox: Can He Reconcile His Position on the Federal Budget with His Recent Charge to Prevent Deflation?


  • Pavlina R. Tcherneva


This paper examines Federal Reserve Chairman Ben Bernanke’s recipe for deflation fighting and the specific policy actions he took in the aftermath of the 2008 financial crisis. Both in his academic and in his policy work, Bernanke has made the case that monetary policy is able to stem deflationary forces largely because of its "fiscal components," and that governments like those in the United States or Japan face no constraints in financing these fiscal components. On the other hand, he has recently expressed strong concerns about the size of the federal budget deficit, calling for its reversal in the name of financial sustainability. The paper argues that these positions are fundamentally at odds with each other, and resolves the paradox by arguing on theoretical and technical grounds that there are no fundamental differences in financing conventional government spending programs and what Bernanke considers to be the fiscal components of monetary policy.

Suggested Citation

  • Pavlina R. Tcherneva, 2010. "Bernanke’s Paradox: Can He Reconcile His Position on the Federal Budget with His Recent Charge to Prevent Deflation?," Economics Working Paper Archive wp_636, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_636

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    Cited by:

    1. Brett Fiebiger, 2016. "Fiscal Policy, Monetary Policy and the Mechanics of Modern Clearing and Settlement Systems," Review of Political Economy, Taylor & Francis Journals, vol. 28(4), pages 590-608, October.
    2. Tanweer Akram & Huiqing Li, 2016. "The Empirics of Long-Term US Interest Rates," Economics Working Paper Archive wp_863, Levy Economics Institute.
    3. Akram, Tanweer & Li, Huiqing, 2017. "What keeps long-term U.S. interest rates so low?," Economic Modelling, Elsevier, vol. 60(C), pages 380-390.
    4. Tanweer Akram & Anupam Das, 2015. "Does Keynesian Theory Explain Indian Government Bond Yields?," Economics Working Paper Archive wp_834, Levy Economics Institute.
    5. Tanweer Akram & Syed Al-Helal Uddin, 2020. "An Empirical Analysis of Long-Term Brazilian Interest Rates," Economics Working Paper Archive wp_956, Levy Economics Institute.
    6. Tanweer Akram & Huiqing Li, 2020. "The Empirics of UK Gilts' Yields," Economics Working Paper Archive wp_969, Levy Economics Institute.
    7. Vladan Hodulák & Oldřich Krpec, 2015. "Francouzsko-Německé monetární vztahy - pnutí v základech eurozóny [Franco-German Monetary Relations - Tensions Built Into the Eurozone Core]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(4), pages 413-435.
    8. Tanweer Akram & Anupam Das, 2014. "The Determinants of Long-Term Japanese Government Bonds' Low Nominal Yields," Economics Working Paper Archive wp_818, Levy Economics Institute.
    9. Tanweer Akram & Huiqing Li, 2018. "The Dynamics of Japanese Government Bonds' Nominal Yields," Economics Working Paper Archive wp_906, Levy Economics Institute.
    10. Tanweer Akram & Anupam Das, 2017. "The Long-run Determinants of Indian Government Bond Yields," Economics Working Paper Archive wp_881, Levy Economics Institute.
    11. Tanweer Akram & Huiqing Li, 2020. "Some Empirical Models of Japanese Government Bond Yields Using Daily Data," Economics Working Paper Archive wp_962, Levy Economics Institute.

    More about this item


    Bernanke; Deflation; Monetary Policy; Crowding Out; Financial Sustainability;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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