Fiscal Policy Under Low Interest Rates

17 June 2022

As Australia’s annual inflation rate soars to 5.1 per cent – the highest annual inflation rate in two decades – policymakers in advanced economies find themselves in an unusual economic environment.

Although public debt ratios are historically high, the Reserve Bank of Australia cash rate is still near an all-time low in nominal terms, and are negative in real terms. Similar trends prevail in other countries, suggesting that real interest rates will remain well below the rate of economic growth, and possibly negative, for the foreseeable future. Such a fundamental change calls for a rethinking of the role of fiscal and monetary policy.

Join renowned economist and senior fellow at the Peterson Institute for International Economics Professor Olivier Blanchard as he discusses the direction fiscal policy should take. 

Visit the video at the School of Economics