Unsound fiscal policy overburdens central banks. The limited fiscal space observed in many economies in the aftermath of the crisis was in part due to high debt levels accumulated before the crisis. When an economy faces the prospect of being caught in a debt trap, the consequences of central bank policies on debt dynamics become particularly important. Monetary policy and fiscal dynamics are inexorably linked. Debt monetization through high inflation may be feared.

Dept Trap an Step Up on Debt