Bianchi, Francesco. <br/><br/>
A Fiscal Theory of Trend Inflation / 
Francesco Bianchi, Renato Faccini, Leonardo Melosi. 
 - Cambridge, Mass.  National Bureau of Economic Research  2022. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w30727 .
 - Working Paper Series (National Bureau of Economic Research)  no. w30727. .
<br/><br/> December 2022. 
<br/><br/> We develop a new class of general equilibrium models with partially unfunded debt to propose a fiscal theory of trend 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 trend inflation accounts for the bulk of inflation dynamics. As external validation, we show that the model predicts the post-pandemic increase in inflation. Unfunded fiscal shocks sustain the recovery and cause an increase in trend inflation that counteracts deflationary non-policy shocks. 
<br/><br/>
<br/><br/><br/>System requirements: Adobe [Acrobat] Reader required for PDF files. <br/>Mode of access: World Wide Web. 
<br/><br/><label>Subjects--Topical Terms: </label><br/>General<br/>General<br/>Fiscal Policy &bull; Modern Monetary Theory