John H. Cochrane

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Monetary-Fiscal Interactions

This is an essay summarizing some of my on the run inflation talk, and updating “fiscal narratives.” Inflation came from a big fiscal shock, and eased when that shock ended. Higher interest rates require fiscal policy to pay interest costs if they are to lower inflation. That crucial fiscal-monetary coordination may be difficult, and the next crisis may repeat the last one faster. The paper is based on comments at the 2024 SOMC conference. Read the paper