Unlike the crisis years of 2007-2009 (when the insolvency of large banks was a major problem), the current round of the global financial crisis has fiscal origins. Almost all developed countries suffer from an excessive public debt burden that has been built up over the last two decades or more....

The global financial and debt crisis highlights the need for a better understanding of how fiscal and monetary policies interact. This article examines three aspects of these interactions, as seen from the perspective of the Czech National Bank. It first looks at the effects of fiscal policy on...

The Economic and Monetary Union (EMU) implies a considerable change in monetary and fiscal policy design in the European Union. With the aid of a two-country version of the Alesina and Tabellini (1987) model, this paper provides a stylized analysis of monetary and fiscal policy interaction in...

At the end of 2014, the Bolivian economy, despite facing negative external shocks (falling oil prices), registered a high economic growth in the region of Latin America. Monetary policy was aimed at keeping the government bond rate close to zero and raising liquidity levels in the economy...

We investigate open economy dimensions of optimal monetary and fiscal policy at the zero lower bound (ZLB) in a small open economy model. At positive interest rates, the trade elasticity has negligible effects on optimal policy. In contrast, at the ZLB, the trade elasticity plays a key role in...

This paper explores the role of uncertain government preferences for fiscal and monetary policy interaction. Our analysis shows that the uncertainty about government preferences does not affect the macroeconomic equilibrium if the fiscal multiplier is known. In the case of multiplicative...

The last review of the ECB’s monetary policy strategy in 2003 followed a period of predominantly upside risks to price stability. Experience following the 2008 financial crisis has focused renewed attention on the question of how monetary and fiscal policy should best interact, in particular...

I introduce the real cost channel in the benchmark New Keynesian model to study government spending multipliers. Even though this new model shows previous evidence that the output gap multiplier in normal times can be overestimated by ignoring the cost channel, I provide a simple Markov chain...

This work examines the impacts which the Covid-19 pandemic brought to the stability of the European financial sector. Lockdowns, businesses unable to operate and uncertainty about how the pandemic would evolve fueled a sharp recession. From the lessons learned in the global financial crises and...

This paper explores the causes and consequences of fiscal dominance over monetary policy in Sub-Saharan Africa (SSA). Fiscal dominance has always been a pressing problem as it can contribute to inflation and macroeconomic instability, and increasingly so as fiscal deficits and public debt are...