Munich Personal RePEc Archive

Is Inflation Fiscally Determined?

Bazzaoui, Lamia and Nagayasu, Jun (2019): Is Inflation Fiscally Determined?

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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.

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