Fiscal policy can reduce inflation without raising interest rates.
The retrieved literature touches upon the interaction between fiscal components and inflation, but does not comprehensively establish that fiscal policy alone can reduce inflation independently of interest rates.
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Inflation targeting in the context of fiscal stimulation. 2025. https://doi.org/10.21202/2782-2923.2025.1.21-36
Objective: to analyze the current issues limiting the effectiveness of the traditional inflation targeting regime; to adjust the basic characteristics of this monetary regime which ensures price stability in order to increase the reliability of the central banks’ macroeconomic forecast.Methods: the article uses empirical, statistical, logical, and comparative methods of economic analysis to study the specifics of the central banks’ inflation targeting regime in the context of stimulating fiscal policy.Results: the article considers the basic characteristics of the traditional inflation targeting regime; identifies the disadvantages of the inflation targeting regime; and reviews the scientific literature on the inflation targeting regime functioning within the monetary and fiscal dominance. The main postulates of the fiscal theory of price regulation are identified. A number of recommendatory measures to adjust the current inflation targeting regime are proposed for the Bank of Russia.Scientific novelty: the author showed that raising the key rate without changing the fiscal components in monetary policy cannot reduce inflation even in the short term. Rational expectations and monetary policy, analyzed in the framework of fiscal theory, do not reduce inflation without fiscal support. In countries with inflation targeting, high interest rates can increase risks of servicing public debt and lead to increased budget deficits. The government’s fiscal policy may create fiscal infla
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The role of central banking, loans and geopolitical risks in the contemporary era. 2026. https://doi.org/10.5937/bankarstvo2602076D
Central banks play a crucial role in maintaining economic stability through controlling the money supply and supporting loan lending to businesses and households. Loans are important for stimulating growth, but excessive borrowing and poor regulation can lead to financial crises. The modern world faces challenges in the form of geopolitical crises such as wars, sanctions, and political instability, which significantly affect financial markets and reduce the landing capacity of banks, particularly in developing countries. These situations increase risks, slow economic growth, and complicate the work of central banks, which must balance controlling inflation with supporting the economy. Geopolitical risk disrupts supply chains, increases inflation, and diminishes investor confidence. Banks often respond by raising interest rates and tightening lending conditions, thus transferring risks to end-users, i.e., loan holders. Fiscal policy, along with monetary policy, plays an important role in stabilising the economy, but its effectiveness depends on timely responses and coordination. Examples of sanctions show how geopolitical tensions affect the banking sector, making access to international financial markets more difficult and increasing risks. Global conflicts and political crises, such as the Russia-Ukraine conflict and conflicts in the Middle East, further burden financial systems and require central banks to adopt new strategies and innovative instruments to preserve stabilit
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