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Interactions between fiscal and monetary policies: a brief history of a long relationship

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  • Dubravko Mihaljek

    (Bank for International Settlements, Basel, Switzerland)

Abstract

This paper compares and contrasts interactions between monetary and fiscal policies in major economies following the recent pandemic recession with selected episodes from the past, notably the Great Inflation of the 1970s, the Great Moderation of the 1990s, and the Great Financial Crisis and its aftermath. Interactions between fiscal and monetary policies in these periods were characterised respectively by the collapse of consensus about fiscal dominance, strict separation of monetary and fiscal policies, and intermittent close coordination. The paper tentatively argues that a consensus on the „new normal“ for the two policies is unlikely to emerge in the near term.

Suggested Citation

  • Dubravko Mihaljek, 2021. "Interactions between fiscal and monetary policies: a brief history of a long relationship," Public Sector Economics, Institute of Public Finance, vol. 45(4), pages 419-432.
    • Handle: RePEc:ipf:psejou:v:45:y:2021:i:4:p:419-432
    DOI: 10.3326/pse.45.4.2
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    Cited by:

    1. Dubravko Mihaljek, 2023. "Inflation and public finances: an overview," Public Sector Economics, Institute of Public Finance, vol. 47(4), pages 413-430.

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    More about this item

    Keywords

    fiscal policy; monetary policy; policy coordination; policy interactions; fiscal dominance; pandemic recession; macroeconomic stabilisation;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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