Fluctuating Macro Policies and the Fiscal Theory

摘要

A popular approach to analyzing macroeconomic policy posits simple policy rules and characterizes how alternative policy specifications perform in dynamic stochastic general equilibrium models. This line of work has shown that simple rules seem to explain observed policy choices quite well and that those rules produce desirable outcomes in popular classes of dynamic monetary models. Most of the work makes convenient assumptions that allow monetary and fiscal rules to be studied separately. Because these assumptions are questionable, it has long been known that the resulting conclusions could be misleading. Recent work, particularly the fiscal theory of the price level, emphasizes that assumptions about how monetary and fiscal policies interact can be important.