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Does fiscal stance affect inflation expectations? Evidence for European economies

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cris.lastimport.scopus2024-02-12T19:29:56Z
dc.abstract.enAccording to the fiscal theory of the price level, in a non-Ricardian regime, high public debt should lead to a price-level increase so as to fulfill intertemporal government budget constraint. Forward-looking agents should anticipate this rise by pushing up their inflation expectations. This study tests the above hypothesis by analyzing the impact of fiscal sustainability on the formation of inflation expectations by private-sector agents – consumers and professional forecasters – in European countries. In the study, we estimate models of inflation expectations, and we include public debt among the explanatory variables. The novelty of this study lies in our analysis of whether the relationship between public debt and inflation expectations is affected by the degree to which fiscal policy is sustainable in European economies. We find that fiscal stance influences the inflation expectations of consumers and professional forecasters. Contrary to intuition, the reaction of consensus economic forecasts to public debt in countries with sustainable fiscal policies seems stronger than in economies with less disciplined fiscal policies. This may suggest that fiscal authorities are constrained by the way in which private-sector agents form their expectations, conducting more responsible fiscal policy in countries where the reaction of economic agents to fiscal variables is stronger.
dc.affiliationUniwersytet Warszawski
dc.contributor.authorMackiewicz-Łyziak, Joanna
dc.contributor.authorŁyziak, Tomasz
dc.date.accessioned2024-01-24T22:11:51Z
dc.date.available2024-01-24T22:11:51Z
dc.date.issued2020
dc.description.financePublikacja bezkosztowa
dc.description.volume68
dc.identifier.doi10.1016/J.EAP.2020.09.010
dc.identifier.urihttps://repozytorium.uw.edu.pl//handle/item/105158
dc.identifier.weblinkhttps://api.elsevier.com/content/article/PII:S0313592620304215?httpAccept=text/xml
dc.languageeng
dc.pbn.affiliationeconomics and finance
dc.relation.ispartofEconomic Analysis and Policy
dc.relation.pages296-310
dc.rightsClosedAccess
dc.sciencecloudnosend
dc.subject.enInflation expectations
dc.subject.enFiscal sustainability
dc.subject.enEuropean economies
dc.subject.enSurvey data
dc.titleDoes fiscal stance affect inflation expectations? Evidence for European economies
dc.typeJournalArticle
dspace.entity.typePublication