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Unexpected inflation devalues nominal government bonds. It must therefore correspond to a decline in expected future surpluses, or a rise in their discount rates, so that the real value of debt equals the present value of surpluses. I measure each component via a vector autoregression, in response to inflation, recession, monetary and fiscal policy shocks. Discount rates, rather than deficits, account for much inflation and deflation. Monetary policy smooths the inflationary response to fiscal shocks. I interpret the results through a fiscal theory of monetary policy.