Credit Risk and Fiscal Inflation

Bing Li, Pei Pei and Fei Tan ()

MPRA Paper from University Library of Munich, Germany

Abstract: Is inflation ‘always and everywhere a monetary phenomenon’ or is it fundamentally a fiscal phenomenon? This article augments a standard monetary model to incorporate fiscal details and credit market frictions. These ingredients allow for both interpretations of the inflation process in a financially constrained environment. We find that adding financial frictions to the model generates important identifying restrictions on the observed pattern between inflation and measures of financial and fiscal stress, to the extent that it can overturn existing findings about which monetary-fiscal policy regime produced the pre-crisis U.S. data.

Keywords: monetary and fiscal policy; financial frictions; marginal likelihood (search for similar items in EconPapers)
JEL-codes: C52 E44 E62 E63 H63 (search for similar items in EconPapers)
Date: 2018-04-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:90486

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