The Fiscal Consequences of Missing an Inflation Target

Michele Andreolli, Hélène Rey

The European Central Bank is unique in setting monetary policy for several sovereign states with heterogeneous debt levels and different maturity structures. The monetary-fiscal nexus is central to the functioning of the euro area. We focus on one particular aspect of that nexus, the effect the reliability of the European Central Bank's monetary policy on public finances. We show that when the ECB misses its inflation target this has large heterogeneous fiscal consequences for Euro Area countries. For comparison we also estimate the fiscal consequences of the Federal Reserve and the Bank of England missing their inflation targets. They are also sizeable

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Year of publication:	January 2023
Authors:	Andreolli, Michele ; Rey, Hélène
Institutions:	National Bureau of Economic Research (issuing body)
Publisher:	Cambridge, Mass : National Bureau of Economic Research
Subject:	Inflationssteuerung \| Inflation targeting \| Geldpolitik \| Monetary policy \| Zentralbank \| Central bank \| Wirkungsanalyse \| Impact assessment \| Öffentliche Finanzen \| Public finance \| Öffentliche Schulden \| Public debt \| Eurozone \| Euro area \| USA \| United States \| Großbritannien \| United Kingdom \| EU-Staaten \| EU countries