The Fiscal Framework of Monetary Policy

28 Pages Posted: 15 Jul 2004 Last revised: 24 Aug 2010

See all articles by Martin S. Feldstein

Martin S. Feldstein

National Bureau of Economic Research (NBER) (deceased); Harvard University (deceased)

Date Written: August 1982

Abstract

This paper illustrates the importance of the fiscal framework for monetary analysis by discussing three separate issues. I begin by examining how the fiscal framework changes the macroeconomic equilibrium associated with different steady state rates of money growth. This includes a summary of research that I have presented elsewhere and comments on several additional aspects of the way in which the fiscal structure destroys the neutrality of monetary policy. The second section deals with the short-run impact of changes in monetary policy. Here again the fiscal structure complicates the economy's response to monetary policy. The final section looks at the effect of the fiscal structure on the central bank's choice of monetary policies. Because fiscal structures affect the costs and benefits of monetary policies, they are likely to influence the policies adopted.

Suggested Citation

Feldstein, Martin S., The Fiscal Framework of Monetary Policy (August 1982). NBER Working Paper No. w0966, Available at SSRN: https://ssrn.com/abstract=226908

Martin S. Feldstein (Contact Author)

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