I want to make it clear that the Bank does not see an overheated economy at this point, nor a threat of inflation lurking around the corner. There is still unused capacity and, thus, room for strong expansion for some time yet.
Fiscal policy also matters for the transmission of monetary policy in low interest rate environments. A recent study by Bank of Finland staff, ”The Power of Forward Guidance and the Fiscal Theory of the Price Level”1, argues that fiscal support is essential for forward guidance announcements to have the right kind of effect on inflation and output.