Princeton Economists Say Debt Can Impair Monetary Policy Rule
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Excessive federal debt can weaken guidelines for the conduct of monetary policy, Princeton University economists said in a paper released today at a symposium held by the Federal Reserve Bank of Kansas City.
“Unsustainable fiscal debt levels can also undermine the credibility of monetary policy rules,” Markus K. Brunnermeier and Yuliy Sannikov said at Jackson Hole, Wyoming. “The central bank is forced to choose between inflation and government default” and can lose credibility or confront financial instability, they said.