Is The Monetarist Arithmetic Unpleasant?

Martín Uribe

NBER Working Paper No. 22866
Issued in November 2016, Revised in December 2016
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics, Monetary Economics

The unpleasant monetarist arithmetic of Sargent and Wallace (1981) states that in a fiscally dominant regime tighter money now can cause higher inflation in the future. In spite of the qualifier ‘unpleasant,’ this result is positive in nature, and, therefore, void of normative content. I analyze conditions under which it is optimal in a welfare sense for the central bank to delay inflation by issuing debt to finance part of the fiscal deficit. The analysis is conducted in the context of a model in which the aforementioned monetarist arithmetic holds, in the sense that if the government finds it optimal to delay inflation, it does so knowing that it would result in higher inflation in the future. The central result of the paper is that delaying inflation is optimal when the fiscal deficit is expected to decline over time.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22866

Users who downloaded this paper also downloaded* these:
Mendoza w22868 Macroprudential Policy: Promise and Challenges
Han and Wei w22812 International Transmissions of Monetary Shocks: Between a Trilemma and a Dilemma
Wu and Zhang w22856 A Shadow Rate New Keynesian Model
Alesina, Azzalini, Favero, Giavazzi, and Miano w22863 Is it the "How" or the "When" that Matters in Fiscal Adjustments?
Stiglitz w22837 The Theory of Credit and Macro-economic Stability
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us