Fiscal policy from a monetary policy perspective

Economic Commentaries, News The low global interest rates have reduced the scope for monetary policy to stimulate the economy, but at the same time may have increased the scope for fiscal policy action. This has brought the interaction between monetary and fiscal policy onto the agenda, particularly with regard to managing a future economic slowdown. The Economic Commentary “Fiscal policy from a monetary policy perspective” discusses the research done in recent years and the debates on stabilisation policy.

Prior to the global financial crisis the framework for stabilisation policy (measures to dampen fluctuations in the economy) in Sweden and in many other countries was aimed at giving the lead role to monetary policy and a more passive role to fiscal policy. But following the crisis this view has at least partly been reassessed – towards a greater focus on fiscal policy. Why? This Economic Commentary takes a closer look at some of the explanations.

Based on recent research and discussion, one can distinguish two main reasons for the change in view: 

  • Global interest rates have been falling over a long period of time. This has reduced the room for manoeuvre for monetary policy, at the same time as it may have increase the scope for fiscal policy to stimulate the economy, without jeopardising the sustainability of public finances.
  • New empirical studies indicate that household consumption may be significantly affected even by temporary fiscal policy measures – an effect that may be greater than was previously thought.

The Commentary also discusses the interaction between fiscal policy and monetary policy and the proposals raised as to how a central bank could receive assistance from fiscal policy when the interest rate is close to its lower bound, that is, in a situation where the central bank would like to cut its policy rate but is not able to.


By Björn Lagerwall, who works at the Monetary Policy Department of the Riksbank.

Updated 27/05/2019
Contact: Press Office, tel. +46 8-7870200