This paper proposes a theory of the fiscal foundations of inflation based on imperfect knowledge and learning. The … theory is similar in spirit to, but distinct from, unpleasant monetarist arithmetic and the fiscal theory of the price level … scale and composition of the public debt, matter for inflation. As a result, fiscal policy constrains the efficacy of …

inflation bias as monetary policy tries to exploit nominal wage contracts to address labour-market distortions Although an … inflation target eliminates this inflation bias, it creates a conflict between monetary policy and discretionary fiscal policy …

positive if the central bank adopts closed-loop strategies that raise the real interest rate when inflation is above target … owing to fiscal deviations. More aggressive defence of the inflation target implies lower debt and higher welfare. Simple …

The purpose of this short paper is to show that inflation “band” targeting can solve the “time inconsistency” problem … that exists under inflation “point” targeting by setting a relevant target range. Moreover, we show that inflation band … natural levels, by setting the inflation rate within a target range and creating unexpected inflation. 2) It can mitigate …

inflation stabilization. Unstable dynamics can occur when the CB is aggressively raising the interest rate in response to higher … expected inflation. The constraint on stabilizing interest rate policy is tighter the higher the primary deficit and the more … policy to be accommodating (passive). Inflation stabilization is nevertheless feasible if the CB uses an instrument not …