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Fiscal stabilization vs. passivity

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  • Bai, Yuting
  • Leeper, Eric M.

Abstract

Fiscal policies that stabilize debt may not provide the fiscal backing necessary for monetary policy to successfully target inflation. Appropriate backing is provided by passive fiscal behavior. Understanding the distinction between stabilizing and passive fiscal policies is central to the design of fiscal rules.

Suggested Citation

  • Bai, Yuting & Leeper, Eric M., 2017. "Fiscal stabilization vs. passivity," Economics Letters, Elsevier, vol. 154(C), pages 105-108.
    • Handle: RePEc:eee:ecolet:v:154:y:2017:i:c:p:105-108
    DOI: 10.1016/j.econlet.2017.03.003
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    References listed on IDEAS

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    3. Jonathan Portes & Simon Wren-Lewis, 2015. "Issues in the Design of Fiscal Policy Rules," Manchester School, University of Manchester, vol. 83, pages 56-86, September.
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    6. John H. Cochrane, 2016. "Stepping on a Rake: the Fiscal Theory of Monetary Policy," NBER Working Papers 22979, National Bureau of Economic Research, Inc.
    7. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
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    9. Mr. Stephan Danninger, 2002. "A New Rule: The Swiss Debt Brake," IMF Working Papers 2002/018, International Monetary Fund.
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    11. McCallum, Bennett T, 1984. "Are Bond-Financed Deficits Inflationary? A Ricardian Analysis," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 123-135, February.
    12. Sims, Christopher A., 2011. "Stepping on a rake: The role of fiscal policy in the inflation of the 1970s," European Economic Review, Elsevier, vol. 55(1), pages 48-56, January.
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    Cited by:

    1. Jean-Bernard Chatelain & Kirsten Ralf, 2020. "Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions," Economics Bulletin, AccessEcon, vol. 40(1), pages 140-147.

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    More about this item

    Keywords

    Fiscal policy; Fiscal sustainability; Monetary policy;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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