Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284226 
Year of Publication: 
2022
Series/Report no.: 
IFS Working Papers No. 22/56
Publisher: 
Institute for Fiscal Studies (IFS), London
Abstract: 
This paper posits an information channel as the explanation for sudden inflations. Consumers saving via nominal government bonds face a choice whether to acquire costly information about future government surpluses. They trade off the cost of acquiring information about the surpluses that back bond repayment against the benefit of a more informed saving decision. Through the information channel, small changes in the economic environment can trigger large responses in consumers' behavior and prices. This setting explains why there can be long stretches of time during which government surpluses have large movements with little inflation response; yet, at some point, something snaps, and a sudden inflation takes off that is strongly responsive to incoming fiscal news.
Subjects: 
Sudden Inflation
Price Level Determination
Monetary Fiscal Interaction
Fiscal Theory of the Price Level
JEL: 
E31
E51
E52
E63
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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