On the Mechanics of Fiscal Inflations

Marco Bassetto, Luca Benzoni and Jason Hall

No WP 2024-15, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: The goal of this paper is twofold. First, we wish to better explain the relationship between Sargent and Wallace’s (1981) unpleasant monetarist arithmetic, the closely connected fiscal theory of the price level (FTPL), and the monetarist view of inflation. Second, we discuss how the recent inflationary episode has contributed to redistributing real resources from holders of government debt to the public purse. In particular, financial prices before the onset of the Covid pandemic suggest that investors viewed an inflationary shock such as the one we experienced as extremely unlikely, so the magnitude of this redistribution caught them by surprise.

Keywords: Macroeconomics; Monetary Economics; Financial Economics (search for similar items in EconPapers)
JEL-codes: E31 E51 E62 G10 (search for similar items in EconPapers)
Pages: 20
Date: 2024-07-05
New Economics Papers: this item is included in nep-cba, nep-eur and nep-mon
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https://doi.org/10.21033/wp-2024-15

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Journal Article: On the Mechanics of Fiscal Inflations (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:98723

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