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Is Inflation Fiscally Determined?

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  • Bazzaoui, Lamia
  • Nagayasu, Jun

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.

Suggested Citation

  • Bazzaoui, Lamia & Nagayasu, Jun, 2019. "Is Inflation Fiscally Determined?," MPRA Paper 95753, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95753
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    More about this item

    Keywords

    inflation; fiscal policy; monetary policy; public debt; panel VAR GMM;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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