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The Dire Effects of the Lack of Monetary and Fiscal Coordination

Author

Listed:
  • Leonardo Melosi

    (Federal Reserve Bank of Chicago)

  • Francesco Bianchi

    (Duke University)

Abstract

We study the problem of coordination between the monetary and the fiscal authorities at the zero lower bound. Lack of coordination between the monetary and fiscal authorities can lead to an explosive dynamics of inflation and large output losses. Policy makers can achieve the goal of mitigating the recession without giving up on long-run macroeconomic stability by committing to inflate away only the portion of debt resulting from an unusually large recession.

Suggested Citation

  • Leonardo Melosi & Francesco Bianchi, 2017. "The Dire Effects of the Lack of Monetary and Fiscal Coordination," 2017 Meeting Papers 110, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:110
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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