Eggertsson and Woodford (2003) point out that a government can more credibly promise to carry out policies that raise prices when (1) the government debt is large and not indexed to inflation and (2) the central bank values the reduction in fiscal burden that reflationary policies will bring (for example, because it may reduce the future level of distortionary taxation).
-3downturns—as was the case during and after the Great Recession—because a sustained inflation breakout is less likely when inflation is less responsive to employment conditions. 6 However, that dynamic also increases the cost, in terms of economic output, of reversing unwelcome increases in longer-run inflation expectations.