Working Paper presents research work by both Danmarks Nationalbank’s employees and our partners. The series is primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

Inflation and price development

Working Paper: A Fiscal Theory of Persistent Inflation

We develop a model with partially unfunded debt to propose a fiscal theory of persistent inflation. After the pandemic, unfunded fiscal shocks sustain the recovery, but also cause a persistent increase in inflation. The model predicts the inflationary effects of the ARPA stimulus out of sample and using real-time data.