Tag Archives: Fiscal policy

FAS, 31 May 2020. PDF. Monetary deficit financing is the norm—after all, central banks distribute their profits. Monetary financing occurs in the context of regular open market operations and QE and, hyper charged, with helicopter drops. The question is not whether monetary policy should finance the government, but why it does so, and to what extent. Fiscal and monetary policy are inherently connected; what constitutes monetary policy is defined by objectives.

NZZ, April 25, 2019. PDF. Modern monetary theory (MMT) is neither a theory, nor modern, nor exclusively monetary. I discuss fallacies related to MMT. Dynamic inefficiency requires permanent, not transitory, r<g. For now, policy makers should rely on common sense rather than MMT.

NZZ, April 25, 2019. PDF. Modern monetary theory (MMT) is neither a theory, nor modern, nor exclusively monetary. I discuss fallacies related to MMT. Dynamic inefficiency requires permanent, not transitory, r<g. For now, policy makers should rely on common sense rather than MMT.

In an NBER working paper, Arvind Krishnamurthy, Stefan Nagel, and Annette Vissing-Jorgensen analyze which components of bond yields were affected by the European Central Bank’s government bond purchasing programs. Given the institutional restrictions on monetary policy in the Euro area, the ECB had to carefully argue why it intervened in the first place. (To many, the case was obvious; the ECB intervention amounted to quasi-fiscal policy. But an intervention with this objective would not...

In the FT blog, Peter Doyle emphasizes the importance of independent fiscal watchdogs. They matter. That’s why less autocratic governments pursuing competent policies support them (and others don’t). It would be useful to have independent fiscal institutions and policy watchdogs on a supranational level.

As the emphasis moves away from monetary initiatives, euro area GDP should benefit from a shift in fiscal policy going back to before the US elections.There has been growing evidence of a shift in the policy mix of various developed economies, from monetary to fiscal. In the euro area, we have likely entered a new cycle where the combination of austerity fatigue and greater flexibility on spending rules leads to more sustained fiscal support, however sub-optimal and uneven across countriesIn...

Another problem is the rise of social discord, for reasons that extend beyond the reach of tax reductions and increased infrastructure spending. Have you noticed that the breathless anticipation of the next central bank “save” has diminished? Remember when the financial media was in a tizzy of excitement, speculating on what new central bank expansion would send the global markets higher in paroxysms of risk-on joy?...

Finanz und Wirtschaft, November 23, 2016. PDF. The diagnosis is far from clear. Nor is the therapy.

Finanz und Wirtschaft, July 20, 2016. PDF. In a perfect world, monetary and fiscal policy are coordinated. In the real world with its political frictions they are not. So much on helicopter money.

In the Richmond Fed’s Econ Focus, Eric Leeper explains his views. Disparate confounding dynamics and simple policy rules: My view is that central banks have put far too many resources into understanding tiny fluctuations and too few resources into the things that actually matter. … Something like the basic Taylor rule doesn’t really serve as a useful litmus test for what policy is doing in the face of these DCDs, so it’s a little bizarre to me that a lot of central banks routinely calculate...