## It’s Never Different: Fiscal Policy Shocks and Inflation

_IMF Working Papers, May 12, 2023_

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**Canonical URL:** [It’s Never Different: Fiscal Policy Shocks and Inflation](https://www.imf.org/en/publications/wp/issues/2023/05/12/its-never-different-fiscal-policy-shocks-and-inflation-533309)

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## Bibliographic details
- Authors: Serhan Cevik, Fedor Miryugin
- Published: May 12, 2023
- Series: IMF Working Papers

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### Overview and methodology
- Sample: a large panel of 139 countries over the period 1970–2021.
- Identification approaches:
  - Local projections using fiscal policy shocks.
  - Narrative approach.
  - Forecast errors.
  - Cyclically-adjusted data on government revenues and non-interest expenditures to identify exogenous changes in fiscal policy.
- Inflation measures analyzed: both headline and core measures (including core CPI).

### Key findings
- Inflation response:
  - Both headline and core measures of inflation increase in response to expansionary shifts in the fiscal policy stance.
- Heterogeneity by country group:
  - Fiscal policy shocks are primarily significant in developing countries.
- Conditional effects:
  - The inflationary impact of fiscal policy shocks depends on:
    - Fiscal space and economic conditions at the time of the shock.
    - Monetary policy type.
    - Exchange rate regimes.
    - Fiscal rules.

### Policy implications and recommendations
- Fiscal policy as macro anchor:
  - Fiscal policy is a critical anchor of macroeconomic stability.
- Use of fiscal policy in demand management:
  - Fiscal policy should be used with care in aggregate demand management because it has significant effects on inflation, which are highly dependent on fiscal space and economic conditions.
- Institutional resilience:
  - Flexible exchange rates and rule-based policymaking provide greater resilience to inflationary shocks.

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2023/05/12/its-never-different-fiscal-policy-shocks-and-inflation-533309_