Working Paper: NBER ID: w24743
Authors: Eric M. Leeper
Abstract: Basic economic reasoning tells us that monetary and fiscal policies always interact to jointly determine aggregate demand and the overall level of prices in the economy. This paper interprets Sweden's explicit monetary and fiscal frameworks in light of this reasoning, bringing recent Swedish inflation and interest-rate developments to bear on the interpretations. Theory and evidence raise the question of whether the two policy frameworks are mutually consistent.
Keywords: Fiscal Policy; Monetary Policy; Inflation; Aggregate Demand; Sweden
JEL Codes: E31; E52; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lower repo rate (E43) | lower primary surplus (H69) |
| lower repo rate (E43) | increase inflation (E31) |
| lower repo rate (E43) | increase aggregate demand (E00) |
| fiscal policy does not adjust (E62) | thwarted effects of monetary policy (E49) |
| fiscal policy becomes contractionary (E62) | deflationary pressures (E31) |
| effective fiscal backing (E62) | achieve inflation targets (E31) |
| inconsistent fiscal policy (E62) | destabilize real value of government debt (H63) |
| destabilize real value of government debt (H63) | affect overall economic performance (F69) |