"Interview with Robert Barro"


  • This article is a smattering of miscellaneous thoughts. Probably worth skimming the article, but not much there.


  • Deficit spending won't stimulate the economy because rational households will simply save more in anticipation of higher taxes

(Ricardian equivalence vs. Keynesian).

  • "No free lunch"
  • "The method of public finance is an important question, but it is less important than the question of how big the government is

and what activities it should carry out."

  • Optimal public finance dictates having tax rates that are similar from year to year. Erratic taxes are distorting.
  • Government imposed intergenerational transfers are neutralized by individuals who are connected intergenerationally to those

receiving the benefit. (Voluntary transfers reduced? not sure what this means)

  • Equity premium - premium between equity and bond instruments. Relates it to the "very low risk-free real interest rate".
  • rare disasters framework - cost of massive natural disasters (Katrina) or man-made disasters (9/11) - leads to noticable

response in real interest rates - people flee towards risk-free assets, reduces interest rate due to increased demand.

Monetary Policy

  • shift toward idea that monetary authority should be committed to price stability or inflation targeting.
  • Talks about Volcker and establishing reputation (credibility and commitment).
  • Fed does not react to GDP growth. Reacts to inflationary pressures - labor market price.
  • Endorses Taylor rule.
  • Some Central Banks are getting better at controlling interest rates, but main point is that responding to inflation with high

short-term rates works.

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