This paper investigates the international spillovers of government debt and the associated risk of inflation within a … inflation at the cost of the funded country. In response to these conflicting interests about inflation, inflation risk may rise … with the level of debt in the PAYG country. Higher inflation risk harms both countries. Actually, in contrast to the debt …

that productivity shocks alone generate significant variation in inflation across the two countries. Government spending … shocks, in contrast, do not account for a significant portion of inflation variation. Varying relative country size, we find … that smaller countries experience higher variability of their inflation differential in response to shocks to productivity …