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Interaction between Monetary and Fiscal Policy and the Policy Mix, Theoretical Consideration and Japanese Experience

  • Yasushi Iwamoto

    (Faculty of Economics, University of Tokyo)

Interactions between monetary and fiscal policy depend on the specification of policy variables that fiscal policy uses. However, a general rule is that when monetary policy is capable of dealing with sticky price adjustment, a primary concern of fiscal authority should be to remedy the resource allocation. My regression study using cross-country data shows that in a majority of OECD countries fiscal policy relies on the automatic stabilizer. Japan is a unique case in that it relies heavily on discretionary fiscal policy. However, Japanese policymakers have recently changed their thinking regarding fiscal policy.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2005/2005cf365.pdf
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-365.

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Length: 41 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:tky:fseres:2005cf365
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  1. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
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