{
  "title": "Fiscal R-Star: Fiscal-Monetary Tensions and Implications for Policy",
  "publication": "IMF Working Papers, August 9, 2024",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2024/08/09/fiscal-r-star-fiscal-monetary-tensions-and-implications-for-policy-552877",
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  "summary": "Since the Global Financial Crisis, fiscal policy in advanced economies has become more “active” – that is, increasingly unresponsive to rising debt levels.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Since the Global Financial Crisis, fiscal policy in advanced economies has become more “active” — increasingly unresponsive to rising debt levels.\n- The paper introduces “fiscal r-star,” defined as the real interest rate required to stabilize debt levels when:\n  - the primary balance is set exogenously,\n  - output is growing at potential, and\n  - inflation is at target.\n- The difference between monetary r-star and fiscal r-star is termed the “fiscal monetary gap” and is proposed as a proxy for fiscal-monetary policy tensions.\n- Current estimates indicate that fiscal-monetary tensions are at historic highs.\n- Given a tepid growth outlook, the paper suggests growth-enhancing reforms and fiscal consolidation, among other policy adjustments, may be needed to attenuate fiscal-monetary tensions over time."
    },
    {
      "heading": "Fiscal r-star Concept and Fiscal-Monetary Gap",
      "content": "- Fiscal r-star: the real interest rate required to stabilize debt under specified assumptions (exogenous primary balance, output at potential, inflation at target).\n- Fiscal monetary gap: monetary r-star minus fiscal r-star; interpreted as a proxy for fiscal-monetary policy tensions."
    },
    {
      "heading": "Empirical Findings (Data and Associations)",
      "content": "- Data: analysis covers over 140 years of data from 16 advanced economies.\n- Associations found with larger fiscal-monetary gaps:\n  - rising debt levels,\n  - higher inflation,\n  - financial repression,\n  - lower real returns on bonds and cash,\n  - elevated risks of future debt crises,\n  - elevated risks of future inflation crises,\n  - elevated risks of future currency crises,\n  - elevated risks of future housing crises,\n  - elevated risks of future systemic crises."
    },
    {
      "heading": "Policy Implications and Recommendations",
      "content": "- To attenuate fiscal-monetary tensions over time, the paper highlights potential adjustments including:\n  - growth-enhancing reforms,\n  - fiscal consolidation,\n  - other policy adjustments appropriate to the context of active fiscal policy and elevated fiscal-monetary gaps.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2024/08/09/fiscal-r-star-fiscal-monetary-tensions-and-implications-for-policy-552877"
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    "Authors: Marijn A. Bolhuis, Jakree Koosakul, Neil Shenai",
    "Published: August 9, 2024",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400282126.001",
    "Since the Global Financial Crisis, fiscal policy in advanced economies has become more “active” — increasingly unresponsive to rising debt levels.",
    "The paper introduces “fiscal r-star,” defined as the real interest rate required to stabilize debt levels when:",
    "The difference between monetary r-star and fiscal r-star is termed the “fiscal monetary gap” and is proposed as a proxy for fiscal-monetary policy tensions.",
    "Current estimates indicate that fiscal-monetary tensions are at historic highs.",
    "Given a tepid growth outlook, the paper suggests growth-enhancing reforms and fiscal consolidation, among other policy adjustments, may be needed to attenuate fiscal-monetary tensions over time.",
    "Fiscal r-star: the real interest rate required to stabilize debt under specified assumptions (exogenous primary balance, output at potential, inflation at target).",
    "Fiscal monetary gap: monetary r-star minus fiscal r-star; interpreted as a proxy for fiscal-monetary policy tensions.",
    "Data: analysis covers over 140 years of data from 16 advanced economies.",
    "Associations found with larger fiscal-monetary gaps:",
    "To attenuate fiscal-monetary tensions over time, the paper highlights potential adjustments including:",
    "**Working Paper**"
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