Abstract: In this paper, we analyze the importance of inflation-indexation of a part of the stock of government debt. We establish empirically using both Local Projections and a narratively identified powerful fiscal event that sovereign deficit shocks are more inflationary when the share of government-issued inflation-indexed debt is higher. We leverage this finding to introduce inflation-indexed debt in macroeconomic models focusing on interactions of fiscal and monetary policy through policy rules, where we show that: (i) even absent further frictions, inflation-indexed debt makes the price level backward-looking (i.e., it becomes a jump-state variable), (ii) it alters bounds that pin down 'active fiscal policy', (iii) it allows us to discriminate to some degree between 'fiscally-led' mechanisms and 'HANK-type' mechanisms surpassing Ricardian equivalence, and (iv) in a calibrated HANK model, changing the share of inflation-indexed government debt from a baseline case without indexed debt to levels observed in the US increases the inflationary effect of a 1% deficit-to-GDP shock by 0.21 percentage points under a fiscally-led policy mix, while there is no sizable effect under a monetary-led policy mix.