Abstract: Contrary to popular belief, inflation-indexed government debt can boost inflation in response to deficit shocks, conditional on a lack of sufficient future fiscal backing. I formalize this insight through a calibrated HANK model with multiple asset types, showing that the cumulative first-year price increase following an unfunded government spending shock of 1% of quarterly GDP is 0.23 percentage points larger when 27% of the government debt stock is indexed to inflation, as is the case in the United Kingdom, relative to a baseline case without indexed debt. Inflation-indexed debt makes the price level partially backward-looking through the government debt valuation equation, thereby causing additional inflationary pressure. Empirical evidence from a large, narratively identified fiscal deficit shock supports this finding, which has additional implications for the distinction between 'fiscally-led' mechanisms and 'HANK-type' mechanisms surpassing Ricardian Equivalence, as well as for the distributional consequences of fiscally-driven inflation.

Abstract: Fiscal deficits in a financial Hegemon such as the United States transmit to exchange rates and inflation abroad. Using market-value data on U.K. and U.S. sovereign debt over 1975-2025, we recover fiscal deficit innovations and document three facts: U.S. deficit innovations depreciate the dollar against sterling, raise U.K. borrowing costs, and raise U.K. consumer and producer prices persistently. We rationalise these facts in a quantitative two-country model in which future surpluses need not back government debt and Hegemon bonds carry a convenience yield. A Hegemon fiscal expansion tightens the foreign government's intertemporal budget constraint through two channels: a wealth effect on foreign holders of Hegemon debt and, more importantly, a spillover to its financing costs, because no arbitrage ties returns on foreign bonds to returns on Hegemon bonds. We call this transmission fiscal contagion and show that the monetary-fiscal policy mix, including the foreign country's own policy stance, determines whether it raises foreign inflation or causes a foreign recession. Estimating the model on U.S. and U.K. data, we find that U.S. fiscal shocks account for about a quarter of the 2021-2023 surge in U.K. inflation. Fiscal sustainability in economies financially integrated with the Hegemon therefore depends in part on fiscal policy at the Hegemon.

Abstract: The origins of the post-2020 inflation are the subject of much debate. One argument has its roots in an unfunded expansion of debt-driven government spending, in what has been labeled fiscal dominance or a fiscally-led policy mix. We show that the risks of such fiscal dominance depend on the degree to which government debt is indexed to inflation. Inflation-indexation has a nonlinear effect on the existence of saddlepath equilibria, and can amplify the inflationary effects of deficit shocks when policy is fiscally led unless monetary and fiscal policy enact coordinated policies that limit, or even invert, the windfall gains enjoyed by households holding indexed debt.

Abstract: This paper develops a macroeconomic model of supply chains, in which demand, captured by explicit order placement, need not be fulfilled concurrently. Our model gives rise to precautionary inventory accumulation behaviour and the amplification of shocks on supply chains, endogenously giving rise to the 'bullwhip effect' known from the Operations Research literature under additional conditions. The basic model is capable of approximating the relative dynamics of the (inventory-)sales volatility on the upper end of the supply chain relative to the lower end of the supply chain in response to shocks on the production and delivery technology. In addition, the model highlights the importance of price adjustment to ensure intertemporal market clearing when order backlogs become too costly. The model mechanism is highly dependent on demand-side policies, which matter significantly for the extent of the bullwhip effect observable in equilibrium.

Abstract: This paper utilizes the unique dynamics of fiscal budgeting in countries with a large hydrocarbon sector to estimate fiscal multipliers. The main identifying assumption rests on the idea that exogenously identified global hydrocarbon demand shocks can be considered plausible instruments for the fiscal space of countries in which that space is significantly dictated by hydrocarbon income, with such shocks being uncorrelated with non-hydrocarbon output at the same time. Using a local projection-instrumental variables (LP-IV) framework, the paper estimates that short-run fiscal expenditure multipliers to be in the ballpark of 0.1-0.4. In addition, we find that multipliers are at the upper end of this interval during recessions, indicating that fiscal policy in the Gulf countries is particularly effective during economic downturns.