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.
Our Research Focus: Inflation and Monetary Policy
Amanda L. Kramer
To receive a notification by email when Economic Quarterly is posted online or to order single copies of past issues, click on the links below (published online only since 2012).