More recently, Woodford’s fiscal theory of the price level suggests that nonsustainable fiscal policies can drive inflation, even if the central bank resists monetization. Following Woodford, Olivier Blanchard has recently argued that tight money policies in Brazil, by raising the government’s financing costs and thus worsening the fiscal situation, might have had inflationary consequences.
Although this subsequent work has refined our understanding of the relationship between monetary and fiscal policy, these analyses are not inconsistent with the spirit of monetarist propositions, which place the blame for inflation on overissuance of nominal government liabilities.