Working Paper: Monetary and Fiscal Policies in Times of Large Debt Unity is Strength

Working Paper - July 2020 - No. 159

Authors Faccini, Renato Maurizio Marco (Danmarks Nationalbank); Bianchi, Francesco (Duke University); Melosi, Leonardo (Federal Reserve Bank Chicago)
Subject Monetary policy
Type Working paper
Year 2020
Published 6 July 2020
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.