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A Fiscal Theory of Persistent Inflation / Francesco Bianchi, Renato Faccini, Leonardo Melosi.
- Format:
- Book
- Author/Creator:
- Bianchi, Francesco.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w30727.
- NBER working paper series no. w30727
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2022.
- Summary:
- We develop a new class of general equilibrium models with partially unfunded debt to propose a fiscal theory of persistent inflation. In response to business cycle shocks, the monetary authority controls inflation and the fiscal authority stabilizes debt. How- ever, the central bank accommodates unfunded fiscal shocks, causing persistent movements in inflation, output, and real interest rates. In an estimated quantitative model, fiscal inflation accounts for the bulk of inflation dynamics. In the aftermath of the pandemic, unfunded fiscal shocks sustain the recovery, but also cause a persistent increase in inflation. The model is able to predict the inflationary effects of the ARPA fiscal stimulus out of sample and with real time data.
- Notes:
- Print version record
- December 2022.
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