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 …

In this study, we revisit Uribe's (2006, Journal of Monetary Economics) `fiscal theory of sovereign risk,' which … suggests a trade-off between stabilizing inflation and suppressing default. Unlike Uribe (2006), we develop a class of dynamic … mechanism follows Uribe (2006). This marginal change generates a new Keynesian Phillips curve which connects inflation and the …

sustainability. Under these circumstances, monetary policy impacts the probability of sovereign default alongside inflation dynamics …. Uribe (2006) studies the relationship between inflation and sovereign defaults with a model in which the central bank … controls a risky interest rate. He concludes that low inflation can only be maintained if the government sometimes defaults …

Is inflation 'always and everywhere a monetary phenomenon' or is it fundamentally a fiscal phenomenon? The answer … market imperfections. These ingredients allow for both interpretations of the inflation process in a financially constrained … important identifying restrictions on the observed pattern between inflation and measures of financial and fiscal stress, to the …