ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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A Fiscalist Approach to Inflation

There has been increasing advocacy of expansionary fiscal and monetary policy as the inflation rate has been at a historical low. It is argued here, however, that with the private sector's absorption of public debt having reached an upper limit, monetary financing of the fiscal deficit has become endogenous. The current low rate of inflation is shown to be the result of the prevailing mode of financing the fiscal deficit.

Fiscal Deficits, Expectations and Exchange Rates

Fiscal deficits that are expected to be reversed at some unknown date in the future cause a real appreciation of the exchange rate along with an expectation of depreciation, a trade deficit, and high domestic interest rates. The expectation of depreciation will have a positive impact on investment provided a time-frame within which the deficit can be credibly reduced is charted and acted on.

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