The fiscal-monetary policy nexus

This event was held as part of a series of high-level webinars that will be livestreamed on our website to the general public as part of the 19th BIS Annual Conference.

The webinar "The fiscal-monetary policy nexus" was delivered by Professor Ricardo Reis and followed by a discussion with John Taylor on Wednesday 18 November.

The fiscal-monetary policy nexus

Ricardo Reis speaks about fiscal and monetary policy in a post Covid-19 world, followed by a discussion with John Taylor.

18 November 2020 | Bank for International Settlements


In his webinar, Mr Reis presented his paper "The constraint on public debt when r < g but g < mu".

Over the past decade in many advanced economies, real interest rates have been decidedly below the growth rate of the economy, but estimates of the marginal product of capital remain higher. Thus, there is a finite bubble component in public debt while the economy is dynamically efficient. I analyse trade-offs for fiscal, monetary and financial repression policy in this scenario. In contrast to standard analyses, I find that the composition of a tax cut determines whether the resulting deficits ever have to be repaid. Inflating away the debt can backfire. Financial repression is effective at loosening the government budget constraint but tightens the economy's resource constraint.

About the speaker

Ricardo ReisRicardo Reis is the A W Phillips Professor of Economics at the London School of Economics. He has published widely on macroeconomics. His main areas of research include the interactions of fiscal and monetary policy, unconventional monetary policies and the central bank's balance sheet, inflation expectations, and the role of capital misallocation in the European slump and crisis. Professor Reis is an academic consultant at the Bank of England and the Federal Reserve System. He directs the Economic and Social Research Council (ESRC) Centre for Macroeconomics in the United Kingdom and serves on the council or as an adviser of multiple organisations. Professor Reis received his PhD from Harvard University, and was previously on the faculty at Columbia University and Princeton University.

About the discussant

John Taylor is Mary and Robert Raymond Professor and Senior Fellow at the Hoover Institution and the Stanford Institute for Economic Policy Research. His academic fields of expertise include macroeconomics, monetary economics and international economics. John is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. From 2001 to 2005, John served as US Under Secretary of Treasury for International Affairs. Taylor received a PhD in economics from Stanford University and was previously a professor of economics at Princeton University and Columbia University.