Identifying Fiscal Inflation

Ferre De Graeve and Virginia Queijo von Heideken

No 273, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Fiscal theorists warn about the risk of future inflation as a consequence of current fiscal imbalances in the US. Because actual inflation remains historically low and data on inflation expectations do not corroborate such risks, warnings for fiscal inflation are often ignored in policy and academic circles. This paper shows that a canonical NK- DSGE model enables identifying an anticipated component of inflation expectations that is closely related to fiscal policy. Estimation results suggest that fiscal inflation concerns have induced a 1.6%-points increase in long-run inflation since 2001. The model also rationalizes why data on inflation expectations do not reveal such concerns outright.

Keywords: Fiscal policy; inflation; news (search for similar items in EconPapers)
JEL-codes: E31 E62 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013-09-01
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Identifying fiscal inflation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0273

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