Inflation adjusted nominal deficit: a note on Robert Barro’s definition
This note discusses the concept of ‘inflation adjusted nominal deficit’ proposed by Robert Barro in light of a stock-flow consistent real deficit. It is argued that the calculation proposed by the author violates the principle of stock-flow consistency and leads one to the erroneous interpretation that a rise in the rate of inflation de- creases the government deficit in nominal terms.
JEL Classification: E31; E62.
Keywords: Inflation nominal deficit stock-flow