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TERRA ECONOMICUS

Fiscal theory of monetary policy: Basic provisions and recommendations


TERRA ECONOMICUS, Vol. 23, No 3,

Citation: Andryushin S.A. (2025). Fiscal theory of monetary policy: Basic provisions and recommendations. Terra Economicus 23(3), 6–31 (in Russian). DOI: 10.18522/2073-6606-2025-233-6-31

Acknowledgment:

The article considers the basic principles and model tools of monetary theory. I show the reasons for errors and miscalculations in monetary theory and its forecast models in conditions of high inflation. Within the framework of the monetary model, Fisher’s thesis has failed to be refuted – why, in conditions of high inflation and high interest rates, inflation tends to increase rather than decrease? This thesis was confirmed and supported scientifically only within the fiscal model of monetary policies. The paper proposes a number of fiscal theory axioms related to increasing monetary policy effectiveness in conditions of rising inflation. Fiscal policy can resolve this paradox of Fisher in conditions of growing inflation. It can maintain not only price stability but also diversify existing instruments of monetary control. The Central Bank of Russia must adjust its model calculations for the budgetary block of its quarterly forecast model by adding several additional equations related to primary budget surpluses, yield spreads between nominal and real bonds, government debt size, and interest payments on servicing this debt. It should also revise its calculation of expected inflation levels, which should be increased by the imputed rate of inflation. To regulate the level of this imputed inflations, it is necessary for Central Bank reserve rates to remain lower than weighted average bond yields, and for yield spreads to be covered by primary budget surpluses and not depend on market-regulated interest rates.

Keywords: monetary and credit policy; inflation; quarterly forecast model; monetary theory; interest rate; fiscal theory; central bank
JEL codes: H60, E69, E52, E47, E31, C50


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Publisher: Southern Federal University
ISSN: 2073-6606