Fiscal policy and inflation expectations

Miguel Mello Costa () and Jorge Ponce

No 2020004, Documentos de trabajo from Banco Central del Uruguay

Abstract: We find empirical evidence of a positive correlation between the budget deficit to GDP and inflation expectations of price setters in Uruguay. It implies an interdependence between fiscal and monetary policies: monetary policy faces more challenges to maintain inflation expectation anchored when the fiscal outcome worsen. The result is robust to considering other fiscal variables and to controlling for macroeconomic covariates. During the period under analysis, however, monetary policy has been effective to compensate the distortions introduced by fiscal policy on inflation expectations.

Keywords: Inflation expectations; budget deficit; fiscal policy; monetary policy; Uruguay (search for similar items in EconPapers)
JEL-codes: E52 E62 E63 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-lam and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bku:doctra:2020004

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