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THE PHENOMENON OF LOW INTEREST RATES IN THE CONTEXT OF MONETARY AND FISCAL INTERACTION (POLICY MIX)

J. Stawska

Abstract

In considering the issue of coordination between monetary policy and fiscal policy, or a lack of it, one has to take account of the so-called zero lower bound on nominal interest rates, also known as a zero-bound (ZLB) problem. The problem basically is that nominal interest rates cannot drop below zero. Many economists argue that a near-zero interest rate encourages fiscal stimulation that certainly has influence on the type of decisions made by the central bank. Some studies point to higher effectiveness of fiscal stimulation in many countries, particularly one accompanied by an accommodative monetary policy (keeping interest rates low), and to the domination of a fiscal policy during a crisis, mainly because its instruments are easier to use and stimulate the economy in less time than the monetary policy measures. This article presents an attempt to reveal interactions occurring between the monetary and fiscal authorities in a low interest rate environment. In order to achieve this aim, the following research methods are used: a review of the literature and of statistical data and statistical analysis methods. The research has shown that a financial crisis and low interest rates have effect on the type of monetary and fiscal policies adopted by economic authorities and thus on monetary and fiscal interactions. The originality of the research lies in analysing changes in monetary-fiscal interactions and factors contributing them, particularly the phenomenon of low interest rates.

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