Subdued economic activity and low tax revenues, especially during crises, drive borrowing and increase public debt. During these periods, to ease the debt burden, central banks may face pressure to deviate from policy targets. Under fiscal dominance, debt sustainability relies on low interest...

The determinacy of dynamic stochastic general equilibrium models including fiscal, macro-prudential or Taylor rules relies on the assumption that policy instruments are forward-looking when policy targets are also forward-looking. Blanchard and Kahn (1980) determinacy condition does not forbid...