Nominal interest rates are bounded at zero, hence deflation raises the possibility of potentially significant increases in real interest rates. Some also argue that resistance to nominal wage cuts will impart an upward bias to real wages as price stability approaches or outright deflation occurs, leaving the economy with a potentially higher level of unemployment in equilibrium.
Monetary domain and fiscal domain Perhaps the most sensitive of the boundaries that have been tested during the crisis is the boundary between monetary and fiscal policies. The crisis has compelled many central banks to break taboos and to take a more expansive view of their mandate.