Understanding Policy in the Great Recession: Some Unpleasant Fiscal Arithmetic

43 Pages Posted: 2 Jun 2010 Last revised: 6 Sep 2012

John H. Cochrane

Hoover Institution; National Bureau of Economic Research (NBER); University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: June 2, 2010

Abstract

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

Cochrane, John H., Understanding Policy in the Great Recession: Some Unpleasant Fiscal Arithmetic (June 2, 2010). Chicago Booth Research Paper No. 10-28; CRSP Working Paper Forthcoming. Available at SSRN: https://ssrn.com/abstract=1619585 or http://dx.doi.org/10.2139/ssrn.1619585

John H. Cochrane (Contact Author)

Hoover Institution ( email )

Stanford, CA 94305-6010
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HOME PAGE: http://faculty.chicagobooth.edu/john.cochrane/index.htm

National Bureau of Economic Research (NBER)

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University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://faculty.chicagobooth.edu/john.cochrane/research/Papers/

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