Working Papers
“Non-Cooperation in Debt Maturity,” May 2024. (slides)
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As part of their institutional toolkit, the United States Federal Reserve conducts open market operations by exchanging shot-term Fed-issued liabilities for non-Fed-issued assets. Importantly, it is legally disallowed from issuing any new liability with a maturity greater than 90 days.
A debt-manager concerned with being `regular and predicable' and `targeting debt costs' may issue a structure of government debt different from that which maximizes welfare. A welfare-maximizing central bank with unconstrained issuance will always perfectly correct this structure, though one unable to issue long-term debt may not. I investigate theoretical consequences of market incompleteness resulting from this institutional constraint and find substantial welfare costs using a neural network solution method.
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Across nearly all advanced economies, fiscal policy is overseen by a federal legislative body and executed by a national debt-manager while monetary policy is initiated and implemented autonomously by a central bank. Both sets of institutions act to achieve independent objectives by primarily utilizing the same instrument: sovereign debt markets. A coordination problem in the joint supply of government bonds may arise.
Theoretical consequences stemming from this institutional coordination problem emerge in a setting with a rich maturity structure of nominal non-contingent public debt. A repeated game materializes when institutions are allowed to optimize against the other, moving the economy away from equilibria supported by a benevolent coordinated government.
Publications
“Regressive Effects of Regulation on Wages” (with James Bailey and Diana Thomas), Public Choice, July 2019.
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A growing body of literature analyzing the distributive consequences of regulation suggests that regulation may have particularly detrimental effects on lower-income households. Regulation can be regressive if it represents the preferences of the wealthy while imposing costs on all households. The specific channel through which regulation may impose costs on lower-income households is its effects on prices and wages. In this issue, Chambers et al. investigate the impact of regulation on prices. They find that regulation raises consumer prices; regulatory interventions therefore are regressive because lower income consumers tend to spend larger percentages of their budgets on regulated goods and services. In this paper, we seek to analyze the effect of regulation on wages across different income levels and occupations.
Press
“A Fiscal Accounting of COVID Inflation” (with Eric Leeper), Mercatus Center Special Study, December 2023.
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Federal COVID-related spending was largely financed through government borrowing with minimal discussion of repayment strategies. Inflation surged in 2021 and remains higher than target. The fiscal theory of the price level helps us examine the intricate interplay of fiscal and monetary policies in shaping this inflation episode.
We focus on two accounting methodologies. Backward accounting dissects changes in the government debt–GDP ratio throughout the COVID period, attributing it to changes in primary deficits, interest rates, inflation, and economic growth. Forward accounting links the market value of debt to expected discounted primary surpluses to interpret current inflation and bond prices in terms of changing beliefs about future fiscal and monetary policy actions.
COVID-related spending, predominantly in the form of transfers to individuals and businesses, in combination with the lack of anticipated tax increases, led to increased consumer expenditure, a swift economic recovery, and ensuing inflation. This work underscores how fiscal policy, monetary policy and household expectations shaped inflation dynamics during and after the COVID crisis.
“Appendix B: Modern Monetary Theory: The End of Policy Norms As We Know Them?” (with Eric Leeper), February 2022.