Are Fiscal Transfers Inflationary?

Jonas E. Arias, Juan F. Rubio-Ramirez and Minchul Shin
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Jonas E. Arias: https://www.philadelphiafed.org/our-people/jonas-arias

No 26-23, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We assess the inflationary effects of fiscal transfers by leveraging advances in the identification of fiscal policy shocks within the recently proposed rotation-invariant time-varying structural vector autoregression. Our analysis suggests that fiscal transfer shocks account for a sizable share of the early post-pandemic increase in the price level through mid-2021. Thereafter, the rise in the price level is dominated by adverse supply shocks (especially supply-chain disruptions), while demand shocks mainly matter later for the lift-off in short-term interest rates. In addition, we find that fiscal transfers were essential for preventing a decline in real output per capita similar to the one experienced during the Great Depression.

Keywords: fiscal policy; structural vector autoregressions; identification (search for similar items in EconPapers)
JEL-codes: C11 C51 E62 (search for similar items in EconPapers)
Pages: 55
Date: 2026-05-05
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DOI: 10.21799/frbp.wp.2026.23

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