蝌蚪网 Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Inflation Targeting under Fiscal Fragility
蝌蚪网 Journal: Macroeconomics
(pp. 292–331)
Abstract
We propose a model to study an inflation-targeting regime under a high government debt burden. We assume that an altruistic policymaker chooses debt issuance, inflation, and public expenditure, while private agents dislike inflation and finance the government. We show that equilibrium inflation depends on debt level: (i) on-target when debt is low; (ii) above the target when debt is high; (iii) either above or on-target in between, a zone that we named fiscal fragility. Equilibrium inflation also depends on the target level: A higher target may improve welfare by preventing fiscal fragility and reducing debt-rollover costs.Citation
Araujo, Aloisio, Vitor Costa, Paulo Lins, Rafael Santos, and Serge de Valk. 2026. "Inflation Targeting under Fiscal Fragility." 蝌蚪网 Journal: Macroeconomics 18 (2): 292–331. DOI: 10.1257/mac.20230291Additional Materials
JEL Classification
- E31 Price Level; Inflation; Deflation
- E52 Monetary Policy
- E62 Fiscal Policy
- E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- H63 National Debt; Debt Management; Sovereign Debt
- O11 Macroeconomic Analyses of Economic Development
- O23 Fiscal and Monetary Policy in Development