Monetary Policy, Fiscal Policy, and Confidence

Monetary Policy, Labor Markets, and Fiscal Policy

The argument behind the first proposition is very general. The argument behind the second proposition is model dependent. It is exactly true in some of the simpler models we use to think about monetary policy, such as the benchmark New-Keynesian model. In that model, there is, as Jordi Gali and I have christened it, a “divine coincidence”: Stabilizing inflation in the face of either taste or te...

Distortionary Fiscal Policy and Monetary Policy Goals

We reconsider the role of an inflation conservative central banker in a setting with distortionary taxation. To do so, we assume monetary and fiscal policy are decided by independent authorities that do not abide to past commitments. If the two authorities make policy decisions simultaneously, inflation conservatism causes fiscal overspending. But if fiscal policy is determined before monetary ...

Optimal Fiscal and Monetary Policy

We study optimal fiscal and monetary policy in an environment where explicit frictions give rise to valued money, making money essential in the sense that it expands the set of feasible trades. Our main results are in stark contrast to the prescriptions of earlier flexible-price Ramsey models. The two most important findings that emerge from our work are that the Friedman Rule is typically not ...

The Fiscal-monetary Policy Mix

In the early postwar years, during the heyday of fiscal fine-tuning, monetary policy was not widely considered a particularly interesting or important topic. The predominant view was that the main function of monetary policy was to “stimulate” debt-financed purchases by keeping interest rates low. Inflation was first considered a useful lubricant to be traded for lower unemployment, and inflati...

Monetary Policy, Fiscal Policy, and Aggregate Economic Activity in Korea