Report
Patrick Artus

The relationships between fiscal and monetary policies

It is traditionally thought that fiscal and monetary policies are substitutable: a more expansionary fiscal policy relieves the need for an overly expansionary monetary policy (as central banks have often repeated), while a more expansionary monetary policy relieves the need for an overly expansionary fiscal policy. But there is strong reason to believe that fiscal and monetary policies are actually complementary: If fiscal policy is highly expansionary, the central bank is forced to conduct an expansionary monetary policy to prevent a loss of fiscal solvency (there is fiscal dominance); If monetary policy is expansionary, the government is encouraged to take advantage of it and conduct a more expansionary fiscal policy. Statistical analysis is ambiguous: Both f iscal and monetary policies have become more expansionary over time; But a cross-country comparison shows that the countries where fiscal policy is more expansionary are those where monetary policy is more restrictive (and vice versa).
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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