Learning the fiscal theory of the price level: Some consequences of debt management policy

Arbeitspapier

This paper examines how the scale and composition of public debt can affect economies that implement a combination of passive monetary policy and active fiscal policy. This policy configuration is argued to be of both historical and contemporary interest in the cases of the U.S. and Japanese economies. It is shown that higher average levels and moderate average maturities of debt can induce macroeconomic instability under a range of policies specified as simple rules. However, interest rate pegs in combination with active fiscal policies almost always ensure macroeconomic stability. This finding suggests that in periods where the zero lower bound on nominal interest rates is a relevant constraint on policy design, a switch in fiscal regime is desirable.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 515

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Expectations; Speculations
• Subject: debt management policy ; maturity structure ; monetary policy ; expectations stabilization

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Eusepi, Stefano ; Preston, Bruce
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/60789
• Last update: 10.03.2025, 11:43 AM CET