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Working Paper
How to Starve the Beast: Fiscal Policy Rules
Martin, Fernando M. (2023-08-08)
Countries have widely imposed fiscal rules designed to constrain government spending and ensure fiscal responsibility. This paper studies the effectiveness and welfare implications of expenditure, revenue, budget balance and debt rules when governments are discretionary and prone to overspending. The optimal prescription is either an expenditure ceiling or a combination of revenue and primary deficit ceilings. Most of the benefits can still be reaped with constraints looser than optimal or escape clauses during adverse times. When imposed on their own, revenue ceilings are only mildly ...
Working Papers , Paper 2019-026

Working Paper
Monetary Policy and the Great COVID-19 Price Level Shock
Andolfatto, David; Martin, Fernando M. (2025-07-28)
We employ a small-scale dynamic general equilibrium model to analyze the surge in inflation following the COVID-19 pandemic. A calibrated version of the model is used to assess U.S. monetary and fiscal policy over the 2020–2024 period and to estimate the economic and welfare consequences of alternative policy scenarios. The analysis suggests that the large fiscal transfers of 2020–2021 were broadly welfare-improving, albeit larger than necessary. Given the fiscal stance in place, optimal monetary policy would not have generated a materially different price level dynamic. While monetary ...
Working Papers , Paper 2025-004

The Impact of the Fed’s Response to COVID-19 So Far
Martin, Fernando M. (2020-06-16)
Since the end of February, the assets of the Federal Reserve have grown by $3 trillion as the Fed has taken measures to alleviate the economic impact of the pandemic.
On the Economy

Working Paper
Debt, inflation and central bank independence
Martin, Fernando M. (2013)
Making the central bank more independent from political pressures lowers inflation and increases the primary deficit, persistently. In the long-run, however, fiscal considerations are paramount and inflation comes back up to accommodate the higher financial burden of accumulated public debt. Endowing instead the central bank with an explicit inflation target lowers long-run inflation and implies non-trivial welfare gains for private agents. Inflation-targeting has the added virtue of determining the primary deficit independently of political frictions. The theory helps explain several key ...
Working Papers , Paper 2013-017

Working Paper
Policy Rules and Large Crises in Emerging Markets
Espino, Emilio; Sanchez, Juan M.; Martin, Fernando M.; Kozlowski, Julian (2025-06-12)
Emerging economies have adopted fiscal and monetary rules to discipline government policy. We study the value and macroeconomic implications of rules and flexibility within a sovereign-default model that incorporates domestic fiscal and monetary policies and long-term external debt. Adopting monetary targets and debt limits during normal times yields welfare gains. Suspending rules can significantly influence policy, macroeconomic outcomes, and welfare during large, unforeseen crises. The gains from flexibility depend on how quickly policymakers are able to reimpose rules after the crisis.
Working Papers , Paper 2022-018

The Road to 2% Inflation: Are We There Yet?
Martin, Fernando M. (2025-02-25)
While inflation has fallen since mid-2022, price increases remain broad-based, with most product categories still experiencing higher inflation than before the pandemic.
On the Economy

Journal Article
The U.S. Financial Landscape on the Eve of the Pandemic
Martin, Fernando M. (2020-08-10)
During the 2007-08 financial crisis, the Federal Reserve stepped in to prevent a possible panic. How did this affect the U.S. financial system in later years?
The Regional Economist , Volume 28 , Issue 3

Working Paper
How to Starve the Beast: Fiscal Policy Rules
Martin, Fernando M. (2020-04-10)
Countries have widely imposed fiscal rules designed to constrain government spending and ensure fiscal responsibility. This paper studies the effectiveness and welfare implications of revenue, deficit and debt rules when governments are discretionary and profligate. The optimal prescription is a revenue ceiling coupled with a balance budget requirement. For the U.S., the optimal revenue ceiling is about 15% of output, 3 percentage points below the postwar average, and yields welfare gains equivalent to 10% of consumption. Most of the benefits can still be reaped with a milder constraint or ...
Working Papers , Paper 2019-026

Journal Article
U.S. Fiscal Policy: Reality and Outlook
Martin, Fernando M. (2016)
Deficits are expected to persist, debt is projected to grow.
Economic Synopses , Issue 10 , Pages 1-2

Journal Article
The federal budget: how the U.S. got here, and where it is headed
Martin, Fernando M. (2014-07)
Now that the turmoil over the federal budget has quieted down somewhat, it?s a good time to examine how spending and revenue have changed since the 1970s and are expected to change in the next 10 years.
The Regional Economist

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