Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 469: The Fiscal Channel of Monetary Policy

Max Breitenlechner (), Martin Geiger () and Mathias Klein ()
Additional contact information
Max Breitenlechner: University of Innsbruck
Martin Geiger: Liechtenstein Institute
Mathias Klein: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: We empirically document that contractionary monetary policy shocks, in addition to low ering output and prices, trigger an expansion in primary deficits and government debt. Inflation follows an S-shaped adjustment, implying that monetary policy shifts rather than permanently alters inflation. Structural counterfactuals show that front-loading fiscal con solidation considerably amplifies the monetary effects, and that the timing of consolidation alters the composition of the fiscal adjustment, with distinct implications for real and nom inal outcomes. The temporary impact of a monetary policy shock on prices is more than halved by the endogenous adjustment in social transfers, whereas the tax system significantly reduces the effect on output.

Keywords: Monetary policy; fiscal channel; monetary fiscal policy interaction; structural counterfactuals; Bayesian proxy structural VAR models

JEL-codes: E32; E52; E63

Language: English

74 pages, August 1, 2026

Full text files 

no.-469-the-fiscal-channel-of-monetary-policy.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:rbnkwp:0469This page generated on 2026-09-04 15:08:37.