CIRJE-F-365 "Interaction between Monetary and Fiscal Policy and the Policy Mix Theoretical Consideration and Japanese Experience"
Author Name Yasushi Iwamoto
Date September 2005
Full Paper PDF file@
Remarks Subsequently published in The Effectiveness of Stabilization Politics: The Bank of Corea International Conference 2005, Seoul: Bank of Corea, 2005, pp. 149-183.

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.