TY - JOUR
T1 - Inflation and the role of macroeconomic policies
T2 - A model for the case of Denmark
AU - Raza, Hamid
AU - Laurentjoye, Thibault
AU - Byrialsen, Mikael Randrup
AU - Valdecantos, Sebastian
N1 - Publisher Copyright:
© 2023 The Author(s)
PY - 2023/12
Y1 - 2023/12
N2 - This paper provides an assessment of the different channels through which monetary, fiscal and income policies affect prices and output in a small open economy and discuss which policy measures are effective and feasible in the face of inflationary shocks. We build a stock-flow-consistent model using sectoral data for Denmark. We then replicate the inflationary environment faced by Denmark and several other countries after the Covid-19 crisis. While taking monetary tightening as a forced policy response for a small open economy with fixed exchange rate, we explore a number of policies that, within the current institutional and legal framework, can potentially mitigate the effects of inflation. Our conclusion is that a close coordination of fiscal and income policies can help reduce the effects of adverse shocks to income without increasing inflation. Furthermore, we find that of all the policies implemented, monetary policy has the most dramatic effects on public debt sustainability.
AB - This paper provides an assessment of the different channels through which monetary, fiscal and income policies affect prices and output in a small open economy and discuss which policy measures are effective and feasible in the face of inflationary shocks. We build a stock-flow-consistent model using sectoral data for Denmark. We then replicate the inflationary environment faced by Denmark and several other countries after the Covid-19 crisis. While taking monetary tightening as a forced policy response for a small open economy with fixed exchange rate, we explore a number of policies that, within the current institutional and legal framework, can potentially mitigate the effects of inflation. Our conclusion is that a close coordination of fiscal and income policies can help reduce the effects of adverse shocks to income without increasing inflation. Furthermore, we find that of all the policies implemented, monetary policy has the most dramatic effects on public debt sustainability.
KW - Fiscal policy
KW - Income policy
KW - Inflation
KW - Monetary policy
KW - Stock-flow consistent model
UR - http://www.scopus.com/inward/record.url?scp=85164326643&partnerID=8YFLogxK
U2 - 10.1016/j.strueco.2023.06.006
DO - 10.1016/j.strueco.2023.06.006
M3 - Journal article
AN - SCOPUS:85164326643
SN - 0954-349X
VL - 67
SP - 32
EP - 43
JO - Structural Change and Economic Dynamics
JF - Structural Change and Economic Dynamics
ER -