This paper uses scenario analysis to illustrate the implications of persistently higher fiscal deficits for monetary policy in the Czech Republic. It distinguishes across different types of fiscal spending and monetary policy responses. The paper argues that coordinated action, explicitly accounting for the monetary policy response to a fiscal easing, can improve policy outcomes. The analysis is complemented by a historical perspective of fiscal and monetary policy interactions in the Czech Republic. Specifically, the paper reviews past policy synchronization, estimates the responsiveness of fiscal policy to debt levels, and constructs a measure of monetary-fiscal policy tensions based on fiscal r*. Intensifying tensions over the coming years point to a potential need for policy adjustments.
Boer et al. (Wed,) studied this question.
Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context: