A0335
Title: Fiscal policy and inflation in the Euro area
Authors: Lorenzo Mori - University of Padova and Bank of Italy (Italy) [presenting]
Guido Ascari - De Nederlandsche Bank and University of Pavia (Netherlands)
Dennis Bonam - De Nederlandsche Bank (Netherlands)
Andra Smadu - De Nederlandsche Bank (Netherlands)
Abstract: The relationship between fiscal policy and inflation dynamics in the Euro Area is investigated, with a focus on the post-pandemic inflation surge. Using a BVAR identified via sign restrictions, the effects of various demand and supply side shocks are disentangled, including fiscal policy, on inflation. First, while both positive demand and adverse supply shocks contributed to the inflation surge, demand shocks were relatively more important. Second, fiscal stimulus played a substantial and progressively increasing role, particularly in influencing domestic-based measures of inflation. Finally, the relative impact of fiscal shocks on inflation dynamics varies across (selected) Euro area countries.
