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Title:Learning the fiscal theory of the price level: Some consequences of debt management policy PDF Logo
Authors:Eusepi, Stefano
Preston, Bruce
Issue Date:2011
Series/Report no.:Staff Report, Federal Reserve Bank of New York 515
Abstract:This paper examines how the scale and composition of public debt can affect economies that implement a combination of passive monetary policy and active fiscal policy. This policy configuration is argued to be of both historical and contemporary interest in the cases of the U.S. and Japanese economies. It is shown that higher average levels and moderate average maturities of debt can induce macroeconomic instability under a range of policies specified as simple rules. However, interest rate pegs in combination with active fiscal policies almost always ensure macroeconomic stability. This finding suggests that in periods where the zero lower bound on nominal interest rates is a relevant constraint on policy design, a switch in fiscal regime is desirable.
Subjects:debt management policy
maturity structure
monetary policy
expectations stabilization
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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