Chapter 2: Inflation and Disinflation: What Role for Fiscal Policy? published by IMF (4/2023)
The chapter finds that although surprise inflation may offer some breathing room for debt ratios, attempts to keep surprising bondholders have historically proven futile or harmful. Indexation practices vary considerably across countries. Hence, when reviewing them, policymakers need to balance protecting specific groups and avoiding making inflation more persistent. Redistribution effects of inflation, in turn, depend on three channels: consumption patterns, income, and wealth. The chapter also estimates the effect of fiscal policy on inflation and shows that targeted fiscal policy can support monetary policy in lowering inflation while protecting those most affected by the cost-of-living crisis.
