Working Paper: Monetary and Fiscal Policies in Times of Large Debt Unity is Strength
Working Paper - December 2021 - No. 159R
We study the implications of a coordinated fiscal and monetary strategy aiming at creating a controlled rise of inflation to wear away a targeted fraction of debt. Under this strategy, the fiscal authority introduces an emergency budget with no provisions on how it will be balanced, while the monetary authority tolerates a temporary increase in inflation to accommodate the emergency budget.