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What is the relationship between large deficits and inflation in industrialized countries?

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Author Info

  • Marco Bassetto
  • R. Andrew Butters

Abstract

Examining industrialized countries, the authors find that large deficits are not associated with higher inflation contemporaneously, nor are they associated with the emergence of higher inflation in subsequent years. This finding suggests that countries that can afford large deficits have built solid reputations and institutions supporting a sound monetary policy and the reversion to a stable fiscal regime.

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Bibliographic Info

Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

Volume (Year): (2010)
Issue (Month): Q III ()
Pages: 83-100

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Handle: RePEc:fip:fedhep:y:2010:i:qiii:p:83-100:n:v.34no.3

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  1. Missale, Alessandro & Blanchard, Olivier Jean, 1994. "The Debt Burden and Debt Maturity," American Economic Review, American Economic Association, vol. 84(1), pages 309-19, March.
  2. Reinhart, Carmen & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
  3. Isabelle Joumard & Makoto Minegishi & Christophe André & Chantal Nicq & Robert W.R. Price, 2008. "Accounting for One-off Operations when Assessing Underlying Fiscal Positions," OECD Economics Department Working Papers 642, OECD Publishing.
  4. Kenneth N. Kuttner & Adam S. Posen, 2001. "The Great Recession: Lessons for Macroeconomic Policy from Japan," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 93-186.
  5. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
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Cited by:
  1. R. Anton Braun & Tomoyuki Nakajima, 2012. "Making the case for a low intertemporal elasticity of substitution," Working Paper 2012-01, Federal Reserve Bank of Atlanta.
  2. R. Anton Braun & Tomoyuki Nakajima, 2012. "Why Prices Don't Respond Sooner to a Prospective Sovereign Debt Crisis," IMES Discussion Paper Series 12-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Gerhard Reitschuler & Rupert Sendlhofer, 2011. "Fiscal policy, trigger points and interest rates: Additional evidence from the U.S," Working Papers 2011-23, Faculty of Economics and Statistics, University of Innsbruck.

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