How heavy a fiscal burden are we carrying to interest rate base camp? The fiscal and monetary space in OECD countries

The article sets out to estimate the current monetary and fiscal space in OECD countries in the context of the monetary policy normalisation process. Such space is necessary to provide for a situation where the business cycle requires a macroeconomic (monetary and fiscal) response (including a potentially stronger anti-crisis response). The monetary space can be expressed by the positive level of interest rates and the fiscal space by the positive difference between the sustainable debt-to-GDP ratio and the current debt ratio. The article finds that interest rate normalisation has yet to create a safe monetary policy response space in many OECD countries. No comfort can be drawn from the fiscal area either, as most countries have reduced their fiscal space in the post-Lehman period.