Paraguay Case: Economics

This article studies the relationship between public debt and inflation based on the price level fiscal theory (FTPL) and data from Paraguay. Unlike other studies, this article also considers this relationship based on the monetary system. Fiscal policy actions are evaluated in an autoregressive monetary structure vector combined with fiscal variables and explained using impulse responses. The results underscore the importance of distinguishing monetary systems in the analysis. In a monetary aggregate system with a proactive fiscal policy, higher public debt shocks will generate inflationary pressures. On the contrary, estimated from the inflation target sample, inflation follows its target path.

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