Unfunded fiscal spending leads to lower real rates – research
Deglobalisation could limit ability of monetary policy to control inflation, says author
Government spending programmes that are not backed by future fiscal adjustments generate a reduction in real interest rates and an increase in inflation, a research paper from the National Bank of Denmark finds.
The paper, published on December 20, examines the interaction between monetary and fiscal policies in the US from the 1960s to the present. It concludes that if the fiscal programmes are “funded”, meaning they are perceived as backed by future tax adjustments, real interest rates and
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