“Minutes of the Federal Open Market Committee, September 16–17, 2015,” press release, October 8. Christiano, Lawrence J., Martin Eichenbaum, and Charles L. Evans (2005). “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy,” Journal of Political Economy, vol. 113 (February), pp. 1–45. Christiano, Lawrence J., Roberto Motto, and Massimo Rostagno (2014). “Risk Shocks,” American Economic Review, vol. 104 (January), pp. 27–65.
I agree with much in this broad-ranging paper.2 In particular, the authors join others in finding that accommodative monetary policy is often associated with successful fiscal consolidations. They conclude that a “tough love” alternative, which would call for the Federal Reserve to withhold monetary accommodation until fiscal policymakers enact legislation to reduce budget imbalances, is likely to be counterproductive.