Monetary Policy Arithmetic: Some Recent Contributions

Standard undergraduate textbooks often cast monetary policy and fiscal policy as separable undertakings. Such a split does seems natural; after all, the players involved are different entities. In the United States, for instance, monetary policy decisions are made by the Federal Reserve, while fiscal policies come under the purview of the federal government. A direct consequence of this “split personality” view of policy action is that it gives monetary policy sole authority over short-term nominal interest rates and/or money growth rates, while fiscal policy gets the final say on tax rates and transfer payment schedules. Indeed, in the monetarist– Keynesian debate, this separatist tradition asks which class of policies is more effective at managing economic activity.