Fiscal-Monetary Interactions – Lessons from the Recent Experience (session organised by the ECB)

Both fiscal and monetary policy have undergone large swings in recent times. The Covid-19 pandemic, increased military spending following the Russian invasion of Ukraine and support measures to limit the repercussions of high inflation for households and firms have generated a highly expansionary fiscal policy stance and led to a deterioration of public finances in the euro area. At the same time, monetary policy has changed course from being highly expansionary during the pandemic to a sharp tightening in response to rising inflation, which has increased government borrowing costs. The interplay between fiscal and monetary policy is particularly challenging in the case of the euro area, where fiscal policy is set primarily at the national level and monetary policy is set centrally. All of this has led to renewed interest in the fiscal-monetary interactions, which will be the topic of this policy panel. Speakers will touch upon various issues, such as the effect of fiscal measures on inflation during the recent high-inflation period, the effect of public debt and public investment on r*, the pace of normalisation for monetary and fiscal policy going forward, the reform of the EU fiscal framework and its implications for the optimal mix of fiscal and monetary policy, the effect of the recent increase in the interest-growth differential for fiscal policy, or the conduct of monetary policy under a situation of high government debt.