Should Central Banks Care About Fiscal Rules?
This essay aims to explain the nature of monetary and fiscal policy interactions and how those interactions could inform the fiscal rules that countries choose to follow. It makes two points: (1) monetary policy control of inflation requires appropriate fiscal backing; (2) European fiscal frameworks appear unlikely to provide the necessary fiscal backing.
I thank Jesper Lindé for comments. This is based on comments I made at the Sveriges Riksbank’s conference “Rethinking the Central Bank’s Mandate,” June 2016. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.