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On the low-frequency relationship between public deficits and inflation

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  • Kliem, Martin
  • Kriwoluzky, Alexander
  • Sarferaz, Samad

Abstract

We estimate the low-frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time-varying VAR model for U.S. data from 1900 to 2011. We find the strongest relationship neither in times of crisis nor in times of high public deficits, but from the mid-1960s up to 1980. Our results suggest that the low-frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after World War II.

Suggested Citation

  • Kliem, Martin & Kriwoluzky, Alexander & Sarferaz, Samad, 2013. "On the low-frequency relationship between public deficits and inflation," Discussion Papers 12/2013, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:122013
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    Cited by:

    1. Francesco Bianchi & Cosmin Ilut, 2017. "Monetary/Fiscal Policy Mix and Agent's Beliefs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 113-139, October.
    2. Amir Ahmadi, Pooyan & Matthes, Christian & Wang, Mu-Chun, 2014. "Drifts, Volatilities and Impulse Responses Over the Last Century," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100562, Verein für Socialpolitik / German Economic Association.
    3. Francesco Bianchi & Leonardo Melosi, 2017. "Escaping the Great Recession," American Economic Review, American Economic Association, vol. 107(4), pages 1030-1058, April.
    4. Yoosoon Chang & Boreum Kwak, 2017. "U.S. Monetary-Fiscal Regime Changes in the Presence of Endogenous Feedback in Policy Rules," Caepr Working Papers 2017-016 Classification- , Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    5. De Graeve, Ferre & Queijo von Heideken, Virginia, 2015. "Identifying fiscal inflation," European Economic Review, Elsevier, vol. 80(C), pages 83-93.
    6. repec:eee:macchp:v2-2305 is not listed on IDEAS
    7. Niall Ferguson & Andreas Schaab & Moritz Schularick, 2015. "Central Bank Balance Sheets: Expansion and Reduction since 1900," CESifo Working Paper Series 5379, CESifo Group Munich.
    8. Kliem, Martin & Kriwoluzky, Alexander & Sarferaz, Samad, 2016. "Monetary–fiscal policy interaction and fiscal inflation: A tale of three countries," European Economic Review, Elsevier, vol. 88(C), pages 158-184.
    9. Chang, Yoosoon & Kwak, Boreum, 2017. "U.S. monetary-fiscal regime changes in the presence of endogenous feedback in policy rules," IWH Discussion Papers 15/2017, Halle Institute for Economic Research (IWH).
    10. Amir-Ahmadi, Pooyan & Matthes, Christian & Wang, Mu-Chun, 2016. "Choosing Prior Hyperparameters," Working Paper 16-9, Federal Reserve Bank of Richmond.

    More about this item

    Keywords

    Time-Varying VAR; Inflation; Public Deficits;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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