Fiscal Policy and Public Debt
Debt dynamics and the r minus g arithmetic, sustainability tests, fiscal multipliers, optimal debt, monetary-fiscal int…
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Courses
Inflation Targeting and Expectations
Why the target is 2 percent, what it means for expectations to be anchored, how expectations are measured, why the Phil…
Monetary Policy Rules and the Policy Stance
From Taylor's 1993 rule to the natural rate of interest and the question every central-bank watcher asks: is policy tig…
Unconventional Monetary Policy
What central banks did when the policy rate hit zero: forward guidance, asset purchases, negative rates, yield curve co…
Entries
Fiscal policy after 2020
The pandemic packages, the inflation that followed, interest bills rising on high debt, and the questions the decade leaves open for r minus g, rules and central bank independence.
Fiscal rules and the Swiss debt brake
Why governments tie their own hands, how the Swiss debt brake works and what it has done since 2003, and the 2024 reform of the European rules.
Sovereign debt and the euro area
Why a country that borrows in a currency it does not control can face a self-fulfilling run, the doom loop between banks and sovereigns, and what "whatever it takes" changed.
Monetary and fiscal interaction
Unpleasant monetarist arithmetic, Leeper's active and passive regimes, the fiscal theory of the price level, and the fiscal reading of the 2021 inflation.
Tax smoothing and the optimal level of debt
Barro's case for deficits in wars and recessions, the Lucas-Stokey view of debt as insurance, and Aiyagari and McGrattan's estimate of how much debt a precautionary economy wants.
Fiscal multipliers
What one unit of government spending does to output in the textbook, in New Keynesian models at the lower bound, and in the data from wars, forecast errors and US states.
Is public debt sustainable?
Fiscal reaction functions and Bohn's test, the r-less-than-g argument of Blanchard, the 90 percent threshold and its spreadsheet, and why the answer depends on the interest rate the market has not yet set.
The government budget constraint and debt dynamics
How the debt ratio moves with the primary balance, the interest rate and growth; the r minus g arithmetic that organises every fiscal debate.
The 2021–2023 test
What drove the inflation surge, whether the anchor held, what the fast disinflation showed, how the frameworks changed, and an exercise on expectations data.
Flexible targeting and its alternatives
Flexible inflation targeting as a loss function, and the makeup strategies proposed for the lower bound: price-level targeting, average inflation targeting, nominal GDP targeting.
Communication
How central banks talk, what the evidence says reaches markets and households, the dot plot, the conditional inflation forecast, and the limits of talking.
Credibility and disinflation
What the ends of hyperinflations and the Volcker disinflation say about the cost of bringing inflation down, and why credibility is the variable that sets the bill.
The Phillips curve
The New Keynesian Phillips curve, why the curve looked flat for twenty years, the state-level evidence, and the nonlinearity that returned in 2021.
Measuring expectations
Surveys of professionals, households and firms, market-based measures and their risk premia, and why households' expectations look nothing like the target.
Anchored expectations
What anchoring means, why Friedman and Phelps made expectations central, and how anchoring is detected in the data.
Why two percent?
Where inflation targeting came from, why the target is positive rather than zero, and the argument for raising it.
Lessons and open questions
What the toolkit can deliver, its side effects, the argument that it stayed on too long after 2021, how the frameworks changed, and an exercise on balance sheet data.
Yield curve control and the exit
Japan's cap on the ten-year yield, Australia's failed three-year target, quantitative tightening, and what the 2019 repo spike taught about how far balance sheets can shrink.
The central bank balance sheet
Reserves, floor versus corridor systems, why central banks lost money after 2022, and when a balance sheet needs fiscal support.
Negative interest rates
Who went below zero, how far, why banks are the crux, the reversal rate, and what the evidence from the euro area and Switzerland says.
Asset purchases: evidence
Event studies, term-premium decompositions, macro estimates, and why central bank researchers find larger effects than academics.
Asset purchases: channels
How buying bonds with reserves can lower long rates: portfolio balance, signalling, liquidity, and what the programmes of the Fed, ECB and Bank of Japan looked like.
Forward guidance
Delphic versus Odyssean guidance, the Fed's calendar and threshold promises, and the puzzle that models predict effects far larger than the data show.
The effective lower bound
Why the policy rate cannot fall much below zero, why that matters more when the natural rate is low, and what a liquidity trap does to the usual policy logic.
Rules in practice: Fed, ECB and SNB
How three central banks describe their own frameworks, how they use rules without following them, and how to compute a prescription yourself.
Real-time data and the Taylor rule
Orphanides' finding that the data available at the time change the verdict on the 1970s, and what it means for judging policy today.
Measuring the policy stance
Real rate gaps, shadow rates at the lower bound, and financial conditions: three ways to answer "is policy tight?"
The natural rate of interest
Wicksell's idea, the Laubach–Williams estimate, and why a number nobody can observe decides whether policy is tight.
Variants of the Taylor rule
Balanced-approach, inertial, forward-looking and first-difference rules, and the five rules the Fed publishes twice a year.
The Taylor principle and determinacy
Why the coefficient on inflation has to exceed one, shown in the three-equation New Keynesian model.
The Taylor rule
Taylor's 1993 formula, what each term means, and why a simple rule described Fed policy so well.
Why rules? Time inconsistency and the case for commitment
Why a central bank that is free to do the best thing each period can end up with higher inflation and nothing to show for it.
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