Fiscal foundations of inflaction : imperfect knowledge by Stefano Eusepi and Bruce Preston
By: Eusepi, Stefano
.
Contributor(s): Preston, Bruce.
Material type: 
ArticlePublisher: 2018Subject(s): POLITICA FISCAL | POLITICA MONETARIA | INFLACION | DEUDA PUBLICAOnline resources: Click here to access online
In:
The American Economic Review v. 108, n. 9, September 2018, p. 2551-2589Summary: This paper proposes a theory of the fiscal foundations of inflation
based on imperfect knowledge and learning. Because imperfect
knowledge breaks Ricardian equivalence, the scale and composition of the public debt matter for inflation. High and moderate duration debt generates wealth effects on consumption demand that impairs the intertemporal substitution channel of monetary policy: aggressive monetary policy is required to anchor inflation expectations. Counterfactual experiments conducted in an estimated model reveal that the US economy would have been substantially more volatile over the Great Inflation and Great Moderation periods if US debt levels had been those observed in Italy or Japan.
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| Artículos | IEF | IEF | OP 234/2018/9-1 (Browse shelf) | Available | OP 234/2018/9-1 |
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| OP 234/2018/8 The American Economic Review | OP 234/2018/8-1 Fiscal rules and discretion in a world economy | OP 234/2018/9 The American Economic Review | OP 234/2018/9-1 Fiscal foundations of inflaction | OP 234/2018/Especial-1 Policy implications of suboptimal chioce | OP 234/2018/Especial-2 Ramsey strikes back | OP 234/2018/Especial-3 The effects of tax changes at the zero lower bound |
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Resumen.
This paper proposes a theory of the fiscal foundations of inflation
based on imperfect knowledge and learning. Because imperfect
knowledge breaks Ricardian equivalence, the scale and composition of the public debt matter for inflation. High and moderate duration debt generates wealth effects on consumption demand that impairs the intertemporal substitution channel of monetary policy: aggressive monetary policy is required to anchor inflation expectations. Counterfactual experiments conducted in an estimated model reveal that the US economy would have been substantially more volatile over the Great Inflation and Great Moderation periods if US debt levels had been those observed in Italy or Japan.
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