TY  - BOOK
AU  - Bianchi,Francesco
AU  - Faccini,Renato
AU  - Melosi,Leonardo
ED  - National Bureau of Economic Research.
TI  - A Fiscal Theory of Trend Inflation
T2  - NBER working paper series
PY  - 2022///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
KW  - General
KW  - jelc
KW  - Fiscal Policy • Modern Monetary Theory
N1  - December 2022; Hardcopy version available to institutional subscribers
N2  - 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
UR  - https://www.nber.org/papers/w30727
UR  - http://dx.doi.org/10.3386/w30727
ER  -