Quantifying the Inflationary Impact of Fiscal Stimulus under Supply Constraints

Abstract: This paper builds on Baqaee and Farhi (2022) and di Giovanni et al. (2022) to quantify the contribution of fiscal policy to U.S. inflation over the December 2019-June 2022 period. Model calibrations show that aggregate demand shocks explain roughly two-thirds of total model-based inflation, and that the fiscal stimulus contributed half or more of the total aggregate demand effect.

Keywords: inflation; fiscal policy; supply constraints;

JEL Classification: E23; E31; E32;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2023-02-01

Number: 1050