2023:1 Stability in the Balance – a Report on the Roles of Fiscal and Monetary Policy to the Expert Group on Public Economics

The economic situation of the past years, with multiple macroeconomic shocks and a low interest rate environment, has changed the conventional view of how stabilisation policy ought to be conducted. When the interest rate cannot be further reduced, monetary policy becomes less effective. This places increased demands on fiscal policy for business cycle stabilisation. In 2022, the economic situation rapidly changed. Increases in inflation and in interest rates raise several questions about how – and by whom – stabilisation policy should be conducted. Since aggregate demand is affected by both fiscal and monetary policy, the interaction between them is crucial for stabilisation policy to be effective. This is the case regardless of the economic situation.

In this report to the Expert Group on Public Economics (ESO), which was previously published in Swedish (2022:3 Samspel för stabilitet), the balance between fiscal and monetary policy in Sweden is analysed. The report summarises the state of knowledge and gives both a theoretical and an empirical review of the effects of fiscal and monetary policy. The authors also discuss the appropriate division of responsibilities between fiscal and monetary policy under new economic conditions and call for clear guidelines regarding the role of fiscal policy in business cycle stabilisation. Since the original publication of this report in Swedish, facts and diagrams have been updated to include more recent data.

Lars Calmfors is professor emeritus of international economics at IIES, Stockholm University and senior researcher at the Research Institute of Industrial Economics. He was chair of the Swedish Fiscal Policy Council during 2007-2011 and of the Swedish Labour Policy Council during 2015-18. His areas of research are macroeconomics and labour economics.

John Hassler received his doctorate at MIT in 1994 and is professor of economics at IIES, Stockholm University. He was chair of the Swedish Fiscal Policy Council during 2013-16. His area of research is macroeconomics, with a particular focus during the last decade on climate economics and climate policy.

Anna Seim is associate professor of economics at Stockholm University. She is a member of the Scientific Advisory Council to the Swedish National Debt Office since 2014 and is a member of the Swedish Fiscal Policy Council since 2022. Her areas of research are macroeconomics and political economy, focusing on topics such as wage formation and exchange rates under different monetary policy regimes.

Order a printed copy of ESO report 2023:1 (Elanders website)

A selection of important words and expressions were identified when translating the report, which may be of use to some readers. These can be found here (Swedish-English) and here (English-Swedish).

Ladda ner rapporten

Seminarium om rapporten