chapter  4
Monetary policy, labour markets and fiscal policy
ByOLIVIER BLANCHARD
Pages 9

The argument behind the first proposition is very general. The argument behind the second proposition is model dependent. It is exactly true in some of the simpler models we use to think about monetary policy, such as the benchmark newKeynesian model. In that model there is, as Jordi Gali and I have christened it, a ‘divine coincidence’.1 Stabilizing inflation in the face of either taste or technology shocks indeed yields the right level of output from a welfare viewpoint.