NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Shotgun Wedding: Fiscal and Monetary Policy

Marco Bassetto, Thomas J. Sargent

NBER Working Paper No. 27004
Issued in April 2020
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics, Monetary Economics

This paper describes interactions between monetary and fiscal policies that affect equilibrium price levels and interest rates by critically surveying theories about (a) optimal anticipated inflation, (b) optimal unanticipated inflation, and (c) conditions that secure a "nominal anchor'' in the sense of a unique price level path. We contrast incomplete theories whose inputs are budget-feasible sequences of government issued bonds and money with complete theories whose inputs are bond-money strategies described as sequences of functions that map time t histories into time t government actions. We cite historical episodes that confirm the theoretical insight that lines of authority between a Treasury and a Central Bank can be ambiguous, obscure, and fragile.

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Document Object Identifier (DOI): 10.3386/w27004

Published: Marco Bassetto & Thomas J. Sargent, 2020. "Shotgun Wedding: Fiscal and Monetary Policy," Annual Review of Economics, vol 12(1).

 
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