Fiscal Consequences of Inflationary Policies
Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)
In this paper we examine from a theoretical perspective the policy proposals made by Krugman (1998a) for the Japanese economy. The main finding is that the government's budget constraint implies that in order to realize long-term inflation, it is insufficient to just have the central bank issue currency; the reduction of the fiscal surplus is also necessary. In addition, I modify the Krugman model to a three-period model and show that in circumstances in which the nominal interest rate is zero, temporary deflation may be aggravated if fiscal policies remain unchanged and the central bank increases the money supply.
Pages: 14 pages
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Journal Article: Fiscal consequences of inflationary policies (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:02010
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