We reinterpret post World War II US economic history using an estimated microfounded model that allows for changes in the monetary/fiscal policy mix. We find that the fiscal authority was the leading authority in the ‘60s and the ‘70s. The appointment of Volcker marked a change in the...

High uncertainty is an inherent implication of the zero lower bound, while deflation is not because of inflationary pressure due to uncertainty about how debt will be stabilized. We show that policy uncertainty empirically accounts for the absence of deflation in the US economy. Announcing...

We develop a theoretical framework to account for the observed instability of the link between inflation and fiscal imbalances across time and countries. Current policy makers behavior influences agents ' beliefs about the way debt will be stabilized. The standard policy mix consists of a...