Many fiscal measures that are popular among the electorate, such as tight price caps or broad-based subsidies, risk fuelling medium-term inflation further, which could ultimately force monetary policy to raise interest rates beyond the level that would be seen as appropriate without fiscal stimulus. Governments need to internalise the effects of their actions on future inflation and monetary policy.
At the same time, the rise of inflation targeting meant central banks used these non-interest rate policies less and less. In Ireland, credit, capital, and interest rate controls were progressively dismantled from the 1980s. 3  1  See Galati, Gabriele and Richhild Moessner (2011), “Macroprudential Policy – A Literature Review”, BIS Working Papers, No.337, Bank for International Settlements.