BEJ

In this work, I make two main contributions. Firstly, I propose an extension of the empirical model introduced by Bernanke and Blanchard (2025) to account for fiscal policy. Determining endogenously the state of supply chains I show that its pure contribution to inflation is small and that it mediates a demand component attributable to accommodating fiscal policy. Through an historical decomposition I estimate this fiscal component to sum to 2.4 percentage points of price inflation over the period 2020Q1:2025Q1. I interpret this result within a standard aggregate supply-aggregate demand (AS AD) framework with supply constraints. Secondly, I provide an R replication package for all the results of Bernanke and Blanchard (2025). I integrated the possibility to derive confidence intervals for the responses of price inflation implied by the standard model through bootstrapping. I show that these are generally not statistically different from zero.

JEL classification: C30, C50, E12, E31, E62