Fiscal Dominance
- The Source
- Apr 30
- 1 min read
"An increasing debt-to-GDP ratio can become inflationary when a central bank, confronted with a substantial public debt, is less willing to raise rates sufficiently to fight inflationary pressures, as such an increase could endanger public debt sustainability. This phenomenon is referred to as fiscal dominance. The risk of fiscal dominance can influence households’ inflation expectations, which can subsequently affect current inflation (through their impact on wages and aggregate demand)".
Comments