7  There is a very long literature that establishes the close link between public deficits and inflation, see Sargent and Wallace (1981), Sims (1994), Woodford (1994, 2001), and Catao and Teronnes (2003). For a discussion of fiscal deficits and hyperinflation, see Sargent (1982) and Dornbusch and Fischer (1986).
8  The ECB’s objective for inflation is “below but close to two per cent.” Inflation surveys suggest that financial market participants believe that the ECB aims for inflation of about 1.7 to 1.9 % per annum.