The effect of monetary policies on inflation: A fiscal perspective

Shifu Jiang

Economics Letters, 2024, vol. 241, issue C

Abstract: We estimate how US monetary policies, namely the current fed funds rate, forward guidance, and large-scale asset purchases, affect inflation. The effect of large-scale asset purchases on inflation is found to be much smaller in the intended direction than the other policies. This difference is accounted for by the responses of fiscal policy. While fiscal policy is eased in response to monetary tightening in the short run, the long-run fiscal consolidation is less intense under unconventional monetary policies.

Keywords: Fiscal theory of the price level; VAR; Monetary policy shocks (search for similar items in EconPapers)
JEL-codes: C32 C36 E52 E63 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:241:y:2024:i:c:s0165176524002891

DOI: 10.1016/j.econlet.2024.111805

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