“Hoş Olmayan” Monetarist Aritmetik (Some “Unpleasant” Monetarist Arithmetic)

Sargent – Wallace Model

Some Unpleasant Monetarist Arithmetic
Thomas J. Sargent and Neil Wallace
PDF file:http://research.mpls.frb.fed.us/research/qr/qr531.pdf

Comment on T.J. Sargent and N. Wallace: ‘Some Unpleasant Monetarist Arithmetic’
Buiter, Willem H.
Monetarism in the United Kingdom, ed. B. Griffiths and G.E. Wood, 1984,
London: Macmillan.
PDF file: Not available!

Some Pleasant Monetarist Arithmetic
Michael R. Darby
   Vol. 9 No. 1, Winter 1985, “Some Pleasant Monetarist Arithmetic”
   PDF file: http://www.minneapolisfed.org/research/qr/qr914.html
   Originally published: Vol. 8 No. 2, Spring 1984, “Some Pleasant Monetarist Arithmetic”
   PDF file: http://www.minneapolisfed.org/research/qr/qr822.pdf

A Reply to Darby
Preston J. Miller and Thomas J. Sargent
Originally published in Quarterly Review Spring 1984
PDF file: http://research.mpls.frb.fed.us/research/qr/qr823.pdf

A Monetarist Model for Economic Stabilization: Review and Update
Keith M. Carlson
Federal Reserve Bank of St. LouisReview, 1986.
PDF file: Not available!

Fiscal Prerequisites for a Viable Managed Exchange Rate Regime: A Non- Technical Eclectic Introduction
Buiter, Willem H.
CEPRDiscussion Papers No. 129, October 1986.
Abstract: The paper first reviews the budget identities of the fiscal and monetary authorities and the solvency constraint or present value budget constraint of the consolidated public sector, for both closed and open economies. It then discusses the new conventional wisdom concerning the fiscal roots of inflationand the budgetary prerequisites for generating and stopping hyperinflation. The popular rationalexpectations model of ‘Unpleasant Monetarist Arithmetic’ of Sargent and Wallace yields ambiguouspredictions concerning the response of inflation to an increase in the fundamental deficit. In addition themodel is incapable of generating hyperinflation: the only runaway, explosive or unstable behaviour themodel can exhibit is ‘hyperdeflation’] In the open economy, the need to maintain a managed exchangerate regime and the government’s need to remain solvent do not impose any constraint on the growthrate of domestic credit. Obstfeld’s proposition to the contrary is due to the omission of governmentbonds and borrowing in his analysis. There is not yet any ‘deep structural’ theory justifying the(exogenous) lower bounds on the stock of foreign exchange reserves which are a characteristicassumption of the literature on collapsing exchange rate regimes. In the absence of such a theory of’international liquidity’, one cannot construct a satisfactory model of a foreign exchange crisis that is not at the same time a government solvency crisis. If it is assumed that such
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A Fiscal Theory of Hyperdeflations? Some Surprising Monetarist Arithmetic
Willem H. Buiter
Oxford Economic Papers, 1987 (39): 111-118.
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A Note on Endogeneous Growth and Monetarist Arithmetic
I. King
PDF file: Not available!

More on Monetarist Arithmetic
F. Papadia and S. Rossi
Journal of Banking & Finance, 14/1 (1990): 145-154
Abstract: In this paper it is shown that the `provocative’ result of Sargent and Wallace’s monetarist arithmetic — namely the existence of a permanent trade-off between short-term and long-term control of inflation when the path of fiscal policy is given — depends on the particular way in which the idea is modelled that the private sector can only hold a limited amount of public debt. Once the formulation is made consistent with the overlapping-generations model underlying S–W’s macroeconomic set-up, the trade-off is only temporary: in the long run, the rate of inflation is independent of the monetary path initially followed.
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Fiscal and Monetary Policy Under EMU: Credible Inflation Targets or Unpleasant Monetary Arithmetic?
Wendy Carlin, Colin P Mayer, Paul Levine and Joseph Pearlman
CEPRDiscussion Papers No. 700, July 1992.
Abstract: The enterprise sectors of Eastern Europe are undergoing fundamental reform. This article evaluates alternative forms of corporate restructuring. It emphasizes differences in the sequence in which reforms are undertaken in different countries. In some countries, restructuring is being undertaken by the state before privatization; in some, restructuring is delegated to private-sector institutions before shares are offered to the public at large; and in others, public offers of shares are preceding restructuring. The article suggests that the recent theoretical literature on corporate ownership and vertical integration provides a useful framework for evaluating alternative sequences of reform. This points to four factors as being central to the reform process: contractual incompleteness between the state, investors and managers; complementarity between the assets of different stakeholders; the relative importance of assets; and the relative abilities of different stakeholders. The continuing role for the state in Eastern Europe is attributable to difficulties of contracting between the state and private firms and the complementarity between the assets of state and firms. The slow pace of privatization is due to poor public finances and inefficient bureaucracies. There is one country in which a substantial amount of restructuring has been undertaken by both the state and the private sector, however: East Germany. This paper documents in some detail the privatization process in East Germany. It notes that five parties have been central to the reform process: the state, the Treuhandanstalt, banks, Western companies and the incumbent management. It records a gradual transfer of control from the state to the management of firms. It argues that the central role played by banks and companies in restructuring reflects an important complementarity between their assets and those of former state-owned enterprises, and the fact that they can offer valuable advice to East German management. This raises the question of what East European countries that do not possess institutions with equivalent skills and resources should do. The experience of East Germany suggests that careful attention should be given to the governance of state agencies and private-sector institutions. The role of financial institutions in funding restructuring should be supplemented by non-financial companies providing management advice. Risk capital will not be available, initially, until East European enterprises have acquired adequate collateral or reputations. In the mean time, international agencies will play a central role in funding the transition.; The paper emphasizes the distinction between the purely fiscal reasons for fiscal policy coordination under EMU (given a credible low-inflation policy by the ECB), and the spillover effects of an uncoordinated fiscal policy on monetary policy. The worst scenario is where an independent ECB sets the common interest rate and responds to a rising government debt/GDP ratio in either of the two `countries’ with a looser monetary stance. The result is high inflation, high debt/GDP ratios and a large public sector. In our intermediate scenario the ECB sets the nominal interest rate and the fiscal authorities bear sole responsibility for their own solvency. The result again, is an excessively large public sector, but government debt is contained and inflation is kept low. In these first two scenarios fiscal policy coordination (with an independent ECB) is counterproductive. The best scenario occurs with credible inflation targeting by the ECB. This removes the incentive for the fiscal authorities to cause surprise inflation. Welfare gains from fiscal coordination now exist but are only substantial in a two-good EMU.
PDF file: Not available!

Unpleasant Monetarist Arithmetic Revisited: Central Bank Independence, Fiscal Policy and European Monetary Union
N. M. Healey and P. Levine
National Westminster Bank Quarterly Review, August 1992, pp. 23-37.
PDF file: Not available!

Monetary Policy, Interest Rates, and Inflation: Budget Arithmetic Revisited
Marco Espinosa and Steven Russell
Federal Reserve Bank of AtlantaWorking Papers 93-12, 1993.
PDF file: Not available!

Monetary and Fiscal Policy Interaction and Government Debt Stabilization
B. van Aarle, L. Bovenberg and M. Raith
Tilburg University, CentER for Economic Research, Discussion Papers, 1995 nr.1
Keywords: Game Theory; Central Banks; Monetary Policy; National Debt; Fiscal Policy;E58; E52; E42; E63; C73;
Abstract: In many developing and developed countries, government debt stabilization is an important policy issue.This paper models the strategic interaction between the monetary authorities who control monetization and the fiscal authorities who control primary fiscal deficits.Government debt dynamics are driven by the interest payments on outstanding debt and the part of the primary fiscal deficits that is not monetized.Modelling the interaction as a differential game, we compare the cooperative equilibrium and the non-cooperative Nash open-loop equilibrium.The well-known unpleasant monetarist arithmetic is reinterpreted in this differential game framework.We consider also the effects of making the Central Bank more independent
PDF file (1461 kb): http://dbiref.kub.nl:2080/greyfiles/center/1995/doc/1.pdf

Fiscal and Monetary Policy and Inflation: The Confederate States 1861-1865
Ari Gerstle
Cliometric Society Undergraduate Economic History Paper Prizes, 1995 Honorable Mention paper
HTML file: http://www.eh.net/Clio/Publications/confederate.shtml

Some Not-So-Unpleasant Monetarist Arithmetic
Michael Dotsey
FRB of Richmond, Economic Quarterly, Fall 1996
Abstract 1: The celebrated monetarist arithmetic argument of Sargent and Wallace implies outcomes that may be large and unpleasant. But a dynamic stochastic model calibrated to the U.S. economy reveals the quantitative effect of monetarist arithmetic to be small. Monetary policies that react to the level of debt produce nominal behavior quite similar to policies that are independent of debt. In actual practices, monetarist arithmetic is not so unpleasant after all.
Abstract 2: This paper analyzes the quantitative significance of Sargent and Wallace’s (1981) “Some Unpleasant Monetarist Arithmetic” in a model that is parameterized to correspond with U.S. data. The major result is that the monetarist arithmetic is not overly unpleasant and that the nominal side of the economy is not very sensitive to whether money growth does or does not respond to government debt.
PDF file (448kb): http://www.rich.frb.org/eq/fall96/dotsey.pdf

Some Even More Unpleasant Monetarist Arithmetic
Bruce SmithJoydeep Bhattacharya and Mark Guzman
Canadian Journal of Economics, August, 1998  Vol. 31  No. 3
Abstract: Does monetizing a deficit always result in a higher rate of inflation than bond financing the same deficit? T. J. Sargent and N. Wallace (1981) produced conditions under which the answer was negative (‘unpleasant monetarist arithmetic’). Subsequent authors have challenged the empirical validity of these conditions. The authors develop a model similar to that of Sargent and Wallace and modify it to allow for financial intermediation. In the presence of reserve requirements, unpleasant arithmetic arises even when the real rate of growth exceeds the real return on bonds. Moreover, under empirically plausible restrictions, there exists a unique equilibrium; no Laffer curve considerations arise.
PDF file: Not available!

The Origin of Mexico’s 1994 Financial Crisis
Francisco Gil-Diaz
The Cato Journal, 17/3, Winter 1998.
HTML filehttp://www.cato.org/pubs/journal/cj17n3-14.html

Monetary Policy Arithmetic: Some Recent Contributions
Joydeep Bhattacharya and Joseph H. Haslag
Federal Reserve Bank of DallasEconomic and Financial Review, 1999, Q3: 26-36.
Abstract: Sargent and Wallace (1981) studied the feasibility of a bond-financed increase in government spending. In their “unpleasant monetarist arithmetic”, Sargent and Wallace showed how using bonds to finance a permanent deficit today may necessitate faster money growth in the future, yielding higher inflation today. The logic behind this “spectacular” result is predicated on the satisfaction of one crucial condition: the real interest rate offered on bonds has to exceed the real growth rate of the economy. In this article, Joydeep Bhattacharya and Joseph Haslag review some recent contributions to this literature in light of the contentious nature of this stricture. Most notably, the authors demonstrate that the conditions under which the unpleasant monetarist arithmetic holds may be even weaker than what Sargent and Wallace had originally envisioned. In addition, the authors consider the possibility of financing the deficit by changing reserve requirements instead of raising money growth rates. Interestingly, a pleasant version of the financing arithmetic emerges.
PDF file: http://www.dallasfed.org/htm/pubs/pdfs/efr/efr9903.pdf

Tight Money Policies and Inflation Revisited
Joydeep Bhattacharya and Noritaka Kudoh
Presented to the Spring 1999 Midwest Macroeconomics Conference in Pittsburgh.
Abstract: In this paper, we revisit the link between tight money policies and inflation in the spirit of Sargent and Wallace’s (1981) paper “Some Unpleasant Monetarist Arithmetic.” To that end, we study a standard overlapping generations model with production with two special features: money is dominated in rate of return, and intermediated storage is subject to a conventional reserve requirement on currency. Under fairly general specifications of technology and preferences, we show that the qualifiers imposed by Sargent and Wallace (1981) and others to generate the “spectacular” result that tight money policies may be inflationary (dubbed “unpleasant monetarist arithmetic”) are sufficient and by no means necessary. In particular, we establish that unpleasant monetarist arithmetic may obtain even if a) the real interest rate on government debt is less than the growth rate and b) the marginal product of capital is less than the growth rate. In other words, unpleasant monetarist arithmetic may obtain in spite of a law return to government debt provided capital earns a premium over it. The substantial weakening of the conditions required for unpleasant arithmetic is attributed to the assumption of a concave neoclassical production function.
PDF file: Not available!

On Some Unpleasant Monetarist Arithmetic
M. J. Manohar Rao
Indian Economic Journal48/1, 1999-2000.
PDF filehttp://www.indianeconomics.org/material/j-sart~5.pdf

Some Incomplete Monetarist Arithmetic
Frances Coppola
Pieria, 2013.10.15.
HTML filehttp://www.pieria.co.uk/articles/some_incomplete_monetary_arithmetic

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