Sweden's Fiscal Framework and Monetary Policy
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.
I thank Campbell Leith and Todd B. Walker for discussions and the Swedish Fiscal Council and Rachel Lee for detailed comments. I also thank Hannes Jagerstedt for patiently gathering data and explaining them to me. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.