Inflation as a Fiscal Limit

44 Pages Posted: 2 Sep 2022 Last revised: 25 Sep 2022

See all articles by Francesco Bianchi

Francesco Bianchi

Johns Hopkins University; NBER; CEPR

Leonardo Melosi

Federal Reserve Bank of Chicago

Date Written: September 21, 2022


Low and stable inflation requires an appropriate fiscal framework aimed at stabilizing government debt. Historically, trend inflation is critically influenced by actual or perceived changes to this framework, while cost-push shocks only account for short-lasting movements in inflation. Before the pandemic, a moderate level of fiscal inflation has counteracted deflationary pressures, helping the central bank to avoid deflation. The recent fiscal interventions in response to the COVID pandemic have altered the private sector’s beliefs about the fiscal framework, accelerating the recovery, but also determining an increase in fiscal inflation. This increase in inflation could not have been averted by simply tightening monetary policy. The conquest of post-pandemic inflation requires mutually consistent monetary and fiscal policies to avoid fiscal stagflation.

Keywords: Fiscal limits, monetary/fiscal policy mix, inflation, government debt, fiscal stagflation

JEL Classification: E50, E62, E30

Suggested Citation

Bianchi, Francesco and Melosi, Leonardo, Inflation as a Fiscal Limit (September 21, 2022). FRB of Chicago Working Paper No. 2022-37, Available at SSRN: or

Francesco Bianchi

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States
14127156283 (Phone)

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CEPR ( email )

United Kingdom

Leonardo Melosi (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics