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Federal Reserve Bank of Dallas, Globalization and Monetary Policy Institute Working Papers
In a passive monetary and active fiscal policy regime, changes in the value of public debt generate wealth effects on households. Then, in contrast to the active monetary and passive fiscal policy regime, inflation moves oppositely from the inflation target and a stronger reaction of interest rates to inflation increases the response of inflation to shocks. Moreover, a higher level of public debt increases the response of inflation while a weaker reaction of taxes to debt decreases the responsedoi:10.24149/gwp124 fatcat:j6h7w4l72razpgagcaoehou4da