Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.
Lack of Trust and Fiscal Dominance: Evidence from a Firm Survey Experiment
News of rising foreign public debt significantly increases German firms' inflation expectations. This response is driven by firms lacking trust in the ECB and expecting accommodative monetary policy. Domestic debt shocks yield no comparable effect. Ultimately, debt becomes inflationary when firms expect central banks to accommodate weak fiscal discipline.
The Working Papers of Danmarks Nationalbank describe research and development, often still ongoing, as a contribution to the professional debate. The viewpoints and conclusions stated are the responsibility of the individual contributors, and do not necessarily reflect the views of Danmarks Nationalbank.