Sound public finances as a prerequisite for monetary policy  Public debt and inflation are related on account of monetary policy’s power to accommodate high levels of public debt. Thus, the higher public debt becomes, the greater the pressure that can be put upon monetary policy to respond accordingly.
Suddenly it might be fiscal policy that calls the shots – monetary policy no longer follows the objective of price stability but rather the concerns of fiscal policy. A state of fiscal dominance has been reached. BIS central bankers’ speeches  1  Technically, fiscal dominance refers to a regime where monetary policy ensures the solvency of the government.