"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.
- 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.