Template-Type: ReDIF-Paper 1.0
Author-Name: Luis Brandao-Marques
Author-X-Name-First: Luis 
Author-X-Name-Last: Brandao-Marques
Author-Name: Marco Casiraghi
Author-X-Name-First: Marco 
Author-X-Name-Last: Casiraghi
Author-Name: Gaston Gelos 
Author-X-Name-First: Gaston 
Author-X-Name-Last: Gelos 
Author-Name: Olamide Harrison  
Author-X-Name-First: Olamide 
Author-X-Name-Last: Harrison
Author-Name: Güneş Kamber  
Author-X-Name-First: Güneş 
Author-X-Name-Last: Kamber  
Title: Is high debt constraining monetary policy? Evidence from inflation expectations
Abstract: This paper examines whether high public debt levels pose a challenge to containing inflation. It does so by assessing the impact of public debt surprises on inflation expectations in advanced and Emerging Market Economies. It finds that debt surprises raise long-term inflation expectations in Emerging Market Economies in a persistent way, but not in advanced economies. The effects are stronger when initial debt levels are already high, when inflation levels are initially high, and when debt dollarization is significant. By contrast, debt surprises have only modest effects in countries with inflation targeting regimes. Increased debt levels may complicate the fight against inflation in Emerging Market Economies with high and dollarized debt levels, and weaker monetary policy frameworks.
Creation-Date: 2023-11
File-URL: https://www.bis.org/publ/work1141.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1141.htm
File-Format: text/html
Number: 1141
Keywords: inflation expectations, monetary policy, fiscal dominance, debt
Classification-JEL: E31, E41, E52, E62
Handle: RePEc:bis:biswps:1141