Monetary and Fiscal Policy : Privileged powers , entwined responsibilities 1

The nexus between monetary and fiscal policies runs deep. Both are intrinsically entwined as instruments of the state with privileged access to resources. Achieving overall economic stability requires that policymakers wield these powers responsibly. Breaching the limits in one policy domain jeopardises sustainability in the other. The two policies must operate consistently and with sufficient safety margins, within a “corridor of stability”. This calls for institutional arrangements that encourage a balanced reliance on each and an appropriate degree of coordination. Those arrangements have worked very well during the pandemic, but challenges loom ahead, as tensions between the two policies are likely to re-emerge. The “joint normalisation” task from unprecedented historical conditions will play a key role.