rates, as reflected in elevated term premia. Source: Staff calculations. Finally, the modest explanatory power of medium-term inflation expectations for interest rates post-GFC for all G7 countries contrast with predictions made under the fiscal theory of the price level, which links concerns over future inflation to the ratio of public debt. The evidence also implies that the real impact of a change in fiscal policy post-crisis is not likely to have been transmitted through the expected inflation channel. 19 A few caveats are worth noting. First, it is
price inflation. Strategic complementarities, Г > 0, dampen the impact of movements in real marginal cost or markups on export price inflation. At the same time a higher Г raises the sensitivity of export price inflation to the ratio of export prices to the destination price index (expressed in the same currency) since firms pay more attention to the price of their competitors. A similar interpretation applies to the source/currency specific import price index inflation rate π i H , t j in equ. (25) . Because marginal costs rely on imported inputs, cost-shocks in