TY  - JOUR
AU  - Woodford,Michael
TI  - Fiscal Requirements for Price Stability
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8072
PY  - 2001
Y2  - January 2001
UR  - http://www.nber.org/papers/w8072
L1  - http://www.nber.org/papers/w8072.pdf
N1  - Author contact info:
Michael Woodford
Department of Economics
Columbia University
420 W. 118th Street
New York, NY 10027
Tel: 212/854-1094
Fax: 212-854-8059
E-Mail: mw2230@columbia.edu
AB  - This paper argues that maintaining price stability requires not only commitment to an appropriate monetary policy rule, but an appropriate fiscal policy rule as well.  'Ricardian equivalence' does not imply that fiscal policy is irrelevant, except in the case of a certain class of policies (called  'Ricardian' policies). The role of fiscal developments in inflation determination under a non-Ricardian regime is illustrated through an analysis of the U.S. bond-price support regime of the 1940s. Several recent theoretical challenges to the logical possibility of a non-Ricardian regime are addressed, and a number of consequences are then drawn for the choice of policies to ensure price stability. An example of a monetary-fiscal regime with attractive properties would combine a  'Taylor rule' for monetary policy with nominal-deficit targeting as a fiscal policy commitment.
ER  -