At the same time, tolerating inflation may throw inflation expectations off balance, causing even more prolonged and painful losses to the economy in the future. From this perspective, balancing fiscal and monetary policies is a prerequisite for success.
Practice shows that an excessive accumulation of fiscal imbalances and fiscal dominance lead to chronic inflation, which eats away at the economy, and to a financial crisis that eventually forces the central bank to give a strong countercyclical response. As a result, the ability of both the central bank and the government to exercise their mandates becomes very limited.