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Some Pleasant Monetarist Arithmetic


  • Michael R. Darby


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.

Suggested Citation

  • Michael R. Darby, 1984. "Some Pleasant Monetarist Arithmetic," NBER Working Papers 1295, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1295
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    References listed on IDEAS

    1. 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..
    2. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
    3. Preston J. Miller, 1983. "Budget deficit mythology," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
    4. Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 325-352.
    5. 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 225-249, Part I, M.
    6. Kochin, Levis A, 1974. "Are Future Taxes Anticipated by Consumers? Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(3), pages 385-394, August.
    7. Kotlikoff, Laurence J & Summers, Lawrence H, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 706-732, August.
    8. Darby, Michael R. & Lothian, James R., 1983. "British economic policy under margaret thatcher: A midterm examination," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 18(1), pages 157-207, January.
    9. Steindl, Frank G, 1974. "Money and Income: The View from the Government Budget Restraint," Journal of Finance, American Finance Association, vol. 29(4), pages 1143-1148, September.
    10. Darby, Michael R, 1975. "The Financial and Tax Effects of Monetary Policy on Interest Rates," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 266-276, June.
    11. Auerbach, Robert D & Rutner, Jack L, 1977. "A Negative View of the Negative Money Multiplier: Comment," Journal of Finance, American Finance Association, vol. 32(5), pages 1814-1817, December.
    12. White, Betsy Buttrill, 1978. "Empirical Tests of the Life Cycle Hypothesis," American Economic Review, American Economic Association, vol. 68(4), pages 547-560, September.
    13. James Tobin & Willem H. Buiter, 1974. "Long Run Effects of Fiscal and Monetary Policy on Aggregate Demand," Cowles Foundation Discussion Papers 384, Cowles Foundation for Research in Economics, Yale University.
    14. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337.
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    1. Why the Cost of the Bailout Doesn’t Matter, part 1
      by knzn in Economics and ... on 2008-09-21 20:14:00


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    Cited by:

    1. Daniel L. Thornton, 2010. "Monetizing the debt," Economic Synopses, Federal Reserve Bank of St. Louis.
    2. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2008. "Fiscal-monetary policy coordination and debt management: a two-stage analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(4), pages 433-448, September.
    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.
    4. Steven Russell & Marco A. Espinosa-Vega, 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.
    5. Patricia S. Pollard, 1993. "Central bank independence and economic performance," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 21-36.
    6. Marco A. Espinosa-Vega & Steven Russell, 1998. "The long-run real effects of monetary policy: Keynesian predictions from a neoclassical model," FRB Atlanta Working Paper 98-6, Federal Reserve Bank of Atlanta.
    7. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics 0504024, EconWPA.
    8. James R. Barth & George Iden & Frank S. Russek, 1984. "Do Federal Deficits Really Matter?," Contemporary Economic Policy, Western Economic Association International, vol. 3(1), pages 79-95, September.
    9. Alpha C. Chiang & Stephen M. Miller, 1998. "The Perception of Government Bonds and Money as Net Wealth: An Integrated Approach," Eastern Economic Journal, Eastern Economic Association, vol. 24(4), pages 435-448, Fall.
    10. 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.
    11. Jorg Bibow, 2011. "The Global Crisis and the Future of the Dollar: Toward Bretton Woods 3?," Chapters,in: Heterodox Analysis of Financial Crisis and Reform, chapter 11 Edward Elgar Publishing.
    12. S. Rao Aiyagari, 1985. "Deficits, interest rates, and the tax distribution," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
    13. Marco A. Espinosa-Vega & Steven Russell, 2001. "Stability of steady states in a model of pleasant monetarist arithmetic," FRB Atlanta Working Paper 2001-20, Federal Reserve Bank of Atlanta.
    14. Peter J. Stemp & William M. Scarth, "undated". "Zero Inflation Targets: Central Bank Commitment and Fiscal Policy Outcomes," Computing in Economics and Finance 1996 _055, Society for Computational Economics.
    15. 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.
    16. 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.

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