Working Paper
On the Mechanics of Fiscal Inflations
Abstract: The goal of this paper is twofold. First, we wish to better explain the relationship between Sargent and Wallace’s (1981) unpleasant monetarist arithmetic, the closely connected fiscal theory of the price level (FTPL), and the monetarist view of inflation. Second, we discuss how the recent inflationary episode has contributed to redistributing real resources from holders of government debt to the public purse. In particular, financial prices before the onset of the Covid pandemic suggest that investors viewed an inflationary shock such as the one we experienced as extremely unlikely, so the magnitude of this redistribution caught them by surprise.
Keywords: Macroeconomics; Monetary Economics; Financial Economics;
JEL Classification: E31; E51; E62; G10;
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File(s): https://doi.org/10.21033/wp-2024-15
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Bibliographic Information
Provider: Federal Reserve Bank of Chicago
Part of Series: Working Paper Series
Publication Date: 2024-07-05
Number: WP 2024-15