My friend and colleague Joe Anderson is on the market with an incredible #EconJMP on equilibria when government debt is issued in a way that conflicts with the central banks' objectives. One of those papers where after reading you see all relevant news through its lens! #EconSky (🧵 below) - ThreadSky

pbousquet.bsky.social • 97 days ago

My friend and colleague Joe Anderson is on the market with an incredible #EconJMP on equilibria when government debt is issued in a way that conflicts with the central banks' objectives. One of those papers where after reading you see all relevant news through its lens! #EconSky

(🧵 below)

Comments

pbousquet.bsky.social•97 days ago

Joe is not on here so I will be reproducing his twitter thread (https://x.com/JoeReedAnderson/status/1860433134803722347)

Joe's Website: https://www.joe-anderson.com/

JMP: https://raw.githack.com/joe-anderson-econ/PDFs/main/MatManagement.pdf

[1/12]

pbousquet.bsky.social•97 days ago

Distortionary taxation and surprise inflation finance government spending. What determines this mix? Households dislike both, but the political costs of high taxes fall on FP, while those of high inflation fall on MP. [2/12]

pbousquet.bsky.social•97 days ago

We can model the Fed & Treasury as playing a game, each concerned with minimizing their own policy outcomes' costs (taxes for the Treasury, inflation for the Fed) and pushing 🏛️ financing to the other. The less constrained one is, the more constrained the other must be. [3/12]

pbousquet.bsky.social•97 days ago

Institutional strength 💪: Do we inflate debt away or repay it using tax revenue? It depends who has more political clout. Relative institutional bargaining power determines how the govt. is financed. Strong Treasury → high inflation, strong Fed → high taxes. [4/12]

pbousquet.bsky.social•97 days ago

A key theoretical result 📜: optimal outcomes require the Fed to have significantly more bargaining power than the Treasury. Of course, a prerequisite for a strong central bank is an independent one. [5/12]

pbousquet.bsky.social•97 days ago

This bargaining approach lets us quantify power dynamics that were previously difficult to measure. US fiscal power rose 📈 in the 60s and fell 📉 in the 80s, and spiked again 📈 after COVID. [6/12]

Comments

Posting Rules

Reply