In the middle panel, the results shown are the average from the Broad Economic Exercise elasticities and a VAR model estimate. Inflation is the private consumption deflator. In the right panel, the results show the counterfactual simulation results from the ECB-BASE model. Monetary policy is assumed to accommodate the fiscal accommodation (i.e. monetary policy is exogenous). Inflation is the private consumption deflator.
The pandemic has now jolted governments – out of necessity – into policies that better reflect the needs of macroeconomic stabilisation. As a result, we are currently witnessing a real-world test case of whether combined fiscal and monetary easing can still lift inflation.