Monetary and Fiscal Policy Overview
This article provides an overview of economic thinking about monetary and fiscal policy. I discuss the methodology of answering policy questions in macroeconomics. I then explain what is known from using this methodology for positive and normative analyses of monetary and fiscal policy. Finally, I describe the challenges associated with endogenizing monetary and fiscal policy.
KeywordsAdjustment costs Commitment Computational experimentation Deflation Endogenous versus exogenous variables Game theory Government budget constraint Implementability Incentive compatibility Inflationary expectations Lump-sum taxes Markov-perfect equilibria Methodology of economics Mirrlees approach to optimal taxation Monetary versus fiscal policy Multiple equilibria Optimal taxation Ramsey approach to optimal taxation Rational expectations Recursive equilibria Ricardian equivalence Social insurance Sticky prices Sunspot equilibrium Taylor rule Wedges
JEL ClassificationsD4 D10
I thank Barbara McCutcheon for her comments. The opinions expressed herein are mine and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.
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