TY  - JOUR
AU  - Giannitsarou, Chryssi
AU  - Scott, Andrew
TI  - Inflation Implications of Rising Government Debt
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12654
PY  - 2006
Y2  - October 2006
DO  - 10.3386/w12654
UR  - http://www.nber.org/papers/w12654
L1  - http://www.nber.org/papers/w12654.pdf
N1  - Author contact info:
Chrissy Giannitsarou
Faculty of Economics
Austin Robinson Building, Sidgwick Ave, CB3 9DD
University of Cambridge
E-Mail: cg349@cam.ac.uk

Andrew Scott
Department of Economics
London Business School
Sussex Place,
London NW1 4SA, UK
E-Mail: ascott@london.edu
M1  - published as Chryssi Giannitsarou, Andrew Scott. "Inflation Implications of Rising Government Debt," in Lucrezia Reichlin and Kenneth West, organizers, "NBER International Seminar on Macroeconomics 2006" University of Chicago Press (2008)

M3  - presented at "ISOM Hosted by Bank of Estonia", June 16-17, 2006
AB  - The intertemporal budget constraint of the government implies a relationship between a ratio of current liabilities to the primary deficit with future values of inflation, interest rates, GDP and narrow money growth and changes in the primary deficit. This relationship defines a natural measure of fiscal balance and can be used as an accounting identity to examine the channels through which governments achieve fiscal sustainability. We evaluate the ability of this framework to account for the fiscal behaviour of six industrialised nations since 1960. We show how fiscal imbalances are mainly removed through adjustments in the primary deficit (80-100%), with less substantial roles being played by inflation (0-10%) and GDP growth (0-20%). Focusing on the relation between fiscal imbalances and inflation suggests extremely modest interactions. This post WWII evidence suggests that the widely anticipated future increases in fiscal deficits, need not necessarily have a substantial impact on inflation.
ER  -