Monetary and fiscal policy should be merged, which in turn changes the role of central banks

Ralph Musgrave

MPRA Paper from University Library of Munich, Germany

Abstract: Keeping monetary and fiscal policy separate causes economic distortions, thus the two should be merged. That is, in a recession for example, the government and central bank should simply spend more (and/or collect less tax), and fund the latter from new or “printed” money. Merging monetary and fiscal policy necessitates a different relationship or split of responsibilities as between governments and central banks, but this is not a big problem. Plus the new relationship dispenses with an illogical element in the current typical relationship, namely that both central bank and government influence aggregate demand.

Keywords: fiscal; policy:; monetary; policy:; distortions:; Abba; Lerner:; central; banks:; national; debt:; modern; monetary; theory:; functional; finance (search for similar items in EconPapers)
JEL-codes: E52 E58 E62 (search for similar items in EconPapers)
Date: 2011-04-25
New Economics Papers: this item is included in nep-hpe, nep-mac and nep-mon
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