What is the Relationship between Large Deficits and Inflation in Industrialized Countries?

18 Pages Posted: 10 Aug 2010

See all articles by Marco Bassetto

Marco Bassetto

Federal Reserve Bank of Chicago

R. Andrew Butters

Indiana University

Date Written: August 9, 2010

Abstract

Examining industrialized countries, the authors find that large deficits are not associated with higher inflation contemporaneously, nor are they associated with the emergence of higher inflation in subsequent years. This finding suggests that countries that can afford large deficits have built solid reputations and institutions supporting a sound monetary policy and the reversion to a stable fiscal regime.

Keywords: public deficit, inflation, time inconsistency, government debt, central bank independence, Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Deficit, Surplus, Debt, Debt Management,

JEL Classification: H62, H63

Suggested Citation

Bassetto, Marco and Butters, R., What is the Relationship between Large Deficits and Inflation in Industrialized Countries? (August 9, 2010). Economic Perspectives, Vol. XXXIV, No. 3, 2010, Available at SSRN: https://ssrn.com/abstract=1655956

Marco Bassetto (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

R. Butters

Indiana University ( email )

1309 E. Tenth St.
Bloomington, IN 47405
United States

HOME PAGE: http://https://kelley.iu.edu/BEPP/faculty/page14113.cfm?ID=46947

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