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Is Inflation Fiscally Determined?

Lamia Bazzaoui and Jun Nagayasu ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the relationship between fiscal variables and inflation for 46 countries from 1960–2017 using a linear identity that links inflation to fiscal and monetary variables and economic growth. The results indicate that inflation is affected by both monetary and fiscal policies. However, the relation between inflation and fiscal variables disappears when monetary policy is based on commitment strategies. We conclude that fiscal determinacy of inflation is only possible when central banks practice poorly structured discretion.

Keywords: inflation; fiscal policy; monetary policy; public debt; panel VAR GMM (search for similar items in EconPapers)
JEL-codes: E31 E43 E63 H63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2019-08
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