A Fiscal Theory of Persistent Inflation
Open accessAbstract
We develop a new class of general-equilibrium models with partially unfunded debt to propose a fiscal theory of persistent inflation. In response to business cycle shocks, the monetary authority controls inflation and the fiscal authority stabilizes debt. However, the central bank accommodates unfunded fiscal shocks, causing persistent movements in inflation, output, and real interest rates. In an estimated quantitative model, fiscal inflation accounts for the bulk of inflation dynamics. In the aftermath of the pandemic, unfunded fiscal shocks sustain the recovery but also cause a persistent increase in inflation. The model is able to predict the inflationary effects of the American Rescue Plan Act fiscal stimulus out of sample and with real-time data.
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Self-citation
Flagged first, then by citations
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- Authors
- Bianchi, F., Faccini, R., & Melosi, L.
- Affiliations
- National Bureau of Economic Research (US)
- Johns Hopkins University (US)
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 2023-05-27
- Volume
- 138
- Issue
- 4
- Pages
- 2127-2179
- ISSN
- 0033-5533 (ISSN-L)
- 1531-4650
- OpenAlex
- W4378549106
- Cited by
- 116
- References
- 45
- Citations by year
- 2026: 27 · 2025: 48 · 2024: 28 · 2023: 10 · 2022: 2 · 2021: 1
- FWCI
- 44.75
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Licence
- academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model (vor)
- Locations
- The Quarterly Journal of Economics (publishedVersion)
- Warwick Research Archive Portal (University of Warwick) (acceptedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Cadmus - EUI Research Repository (European University Institute) (submittedVersion, other-oa)
- Topics
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Fiscal Policies and Political Economy
- Keywords
- inflation persistence, fiscal shocks, inflation dynamics, business cycle shocks, fiscal stimulus, American Rescue Plan Act, post-pandemic recovery, real interest rates, output dynamics
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