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

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  • 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.

Suggested Citation

  • Marco Bassetto & R. Andrew Butters, 2010. "What is the relationship between large deficits and inflation in industrialized countries?," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 34(Q III), pages 83-100.
    • Handle: RePEc:fip:fedhep:y:2010:i:qiii:p:83-100:n:v.34no.3
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    References listed on IDEAS

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    Cited by:

    1. R. Anton Braun & Tomoyuki Nakajima, 2011. "Making the Case for a Low Intertemporal Elasticity of Substitution," KIER Working Papers 788, Kyoto University, Institute of Economic Research.
    2. R. Anton Braun & Tomoyuki Nakajima, 2018. "Why Prices Don't Respond Sooner to a Prospective Sovereign Debt Crisis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 235-255, July.
    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, Universität Innsbruck.
    4. Abebe Aragaw, 2024. "The inflationary effect of the budget deficit: does financial sector development matter?," Journal of Innovation and Entrepreneurship, Springer, vol. 13(1), pages 1-15, December.
    5. Roudari, Soheil & Salmani, Yunes, 2020. "Macroeconomic Effects of Government Debt to Banks in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 15(4), pages 403-422, October.

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