The Monetary-Fiscal Policy Mix: Perspectives from the U.S.

Abstract

This paper discusses the U.S. perspective on the monetary-fiscal policy mix, and the interactions between monetary and fiscal policy more broadly. It identifies three sets of issues that have been modeled in the theoretical literature: composition effects, the implications of fiscal solvency, and problems stemming from coordination failures and strategic interactions. Empirical work presented in the paper indicates that fiscal and monetary policy appear to have had effects on the composition of output, but solvency, coordination and strategic issues have been neither significant nor endemic. In addition, there is no evidence of a systematic Federal Reserve response to fiscal policy, beyond that which would be implied by the impact of fiscal policy on future GDP growth.

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