Preparing for the Next Financial Crisis

264 Economic policies and nancial stability

the policy rate results in an acceleration of public nominal debt issuance. If the

holders of the nominal debt understand the situation, the increase in the policy

rate does not have the expected restrictive eect and ination accelerates. The

main determinant of ination has become scal policy.

Leeper and Walker (2011) underline that the “unpleasant monetarist arithme-

tic” and the scal theory of the price level are two dierent conceptions of the

determination of ination. Ination and the level of prices depend in both cases

on monetary and scal policies, but these conceptions refer to dierent monetary

and scal regimes or institutions. In that regard, neither the “unpleasant mone-

tarist a ...