Reliance, Composition, and Inflation Bhattacharya, Joydeep Haslag, Joseph Bhattacharya, Joydeep
dc.contributor.department Economics 2021-08-11T17:50:28.000 2021-08-14T04:32:32Z 2021-08-14T04:32:32Z 2000-01-01
dc.description.abstract <p>To pay for their spending, governments use one or more of the following: taxes, sale of debt to the public, and money creation. Taxes and debt issuance are typically under the purview of the treasury (the government’s fiscal side), and money creation is under the control of the central bank (the government’s monetary side). This split seems natural since most central banks are required to maintain price stability and, hence, ought to have complete control over the money supply. In recent years, however, based on the work of Christ (1968) and Sargent and Wallace (1981), economists have noted that a single, forward- looking budget constraint unifies these two government branches. As a direct consequence of this constraint, every fiscal action potentially has a monetary component to it, and vice versa. As such, it becomes hard to pinpoint whether the central bank really has complete control over money creation or whether it is passively creating money at the treasury’s beck and call. If the latter is true, the central bank is severely constrained in performing its task of maintaining price stability. Or is it? This article presents a model in which the central bank retains substantial control over the inflation rate despite being subservient to the treasury in a very precise sense.</p>
dc.description.comments <p>This article is published as Reliance, Composition, and Inflation (with J. Haslag); Federal Reserve Bank of Dallas, <em>Economic and Financial Review</em>, 4th qtr, 2000.</p>
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dc.identifier archive/
dc.identifier.articleid 1830
dc.identifier.contextkey 24277152
dc.identifier.s3bucket isulib-bepress-aws-west
dc.identifier.submissionpath econ_las_pubs/816
dc.language.iso en
dc.source.bitstream archive/|||Sat Jan 15 02:07:17 UTC 2022
dc.subject.disciplines Economic Policy
dc.subject.disciplines Finance
dc.subject.disciplines Public Economics
dc.title Reliance, Composition, and Inflation
dc.type article
dc.type.genre article
dspace.entity.type Publication
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