Understanding Policy in the Great Recession: Some Unpleasant Fiscal Arithmetic
43 Pages Posted: 2 Jun 2010 Last revised: 6 Sep 2012
Date Written: June 2, 2010
I use the valuation equation of government debt to understand fiscal and monetary policy in and following the great recession of 2008-2009, to think about whether the US is headed for a fiscal inflation, and what that inflation will look like. I emphasize that a fiscal inflation can come well before large deficits or monetization are realized, and is likely to come with stagnation rather than a boom.
Keywords: Fiscal theory of the price level, Financial crisis, Monetary Policy, Inflation
JEL Classification: E3, E4, E5, E6
Suggested Citation: Suggested Citation