Printing Away the Mortgages: Fiscal Inflation and the Post-COVID Boom

We analyze the impact of fiscal and monetary stimulus in an economy with mortgage debt, where inflation redistributes from savers to borrowers. We show theoretically that fiscal transfers without future tax increases cause a surge in inflation, increasing consumption demand and house prices. The power of fiscal stimulus grows when borrowers are more indebted. We then show quantitatively that transfers followed by easy monetary policy cause a surge in inflation which helps explain features of the post-Covid boom, including a boom in output and house prices. This boom comes with a longer-term contraction, since redistribution reduces borrower labor supply. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org .