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Fiscal shocks and the surge of inflation

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  • Mori, Lorenzo

Abstract

Using a structural vector autoregression, I document the dominant role of fiscal policy in the recent surge of inflation in the United States. The comovement of output, prices, and primary deficits yields a set of identifying restrictions that allow me to estimate the causal effects of exogenous fiscal shocks. I show that fiscal policy has long been an important driver of inflation, with its unusually large role in the recent inflation surge reflecting the unprecedented scale of fiscal interventions. In the euro area, fiscal policy also contributed to inflation, and the timing of interventions helps explain why the surge lagged behind that in the United States.

Suggested Citation

  • Mori, Lorenzo, 2026. "Fiscal shocks and the surge of inflation," European Economic Review, Elsevier, vol. 187(C).
    • Handle: RePEc:eee:eecrev:v:187:y:2026:i:c:s0014292126001285
    DOI: 10.1016/j.euroecorev.2026.105384
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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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