Economic Policy and Performance in Industrial Democracies: by Takayuki Sakamoto

By Takayuki Sakamoto

This e-book is the 1st systematic examine of ways the interdependence of monetary and financial rules and the interplay of social gathering governments and significant banks have an effect on the fiscal-policy combine in eighteen commercial democracies in North the United States, Western Europe, Japan and Oceania. Sakamoto argues that primary banks’ impact on fiscal coverage is way extra large than has been conventionally believed. He demonstrates that significant banks systematically impact economic coverage that's carried out through get together governments, and that autonomous valuable banks restrain the latter’s financial coverage. Sakamoto additionally demonstrates that the commercial coverage of commercial democracies did relatively swap from the 1960s-1970s to the 1980s-1990s and have become conservative as a result of globalization of the economic climate and governments’ reaction to it. yet he argues that regardless of the neo-liberal coverage shift, globalization has no longer lowered the function of household politics in fiscal coverage.

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Extra info for Economic Policy and Performance in Industrial Democracies: Party Governments, Central Banks and the Fiscal-Monetary Policy Mix (Routledge Frontiers of Political Economy)

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In addition, governments also sometimes use a loose fiscal–loose monetary policy mix to fight recessions, or a tight fiscal–tight monetary policy mix to control inflation. In these cases, both fiscal and monetary 16 The fiscal–monetary policy mix policies are used in a compatible, complementary manner to achieve economic goals. Even though party governments and policy makers may like to achieve high economic growth and low unemployment, they cannot afford to have high inflation for a long time because high inflation can cause economic problems through multiple channels and eventually impair output and employment and undermine their economic goals.

The worst outcome that could result from this would be recession (low growth, high unemployment) with fiscal deficits. ) But neither party governments nor central banks would like to bring about this outcome. So this potential deflationary reaction by central banks and its harmful macroeconomic consequences should deter party governments from resorting to an undisciplined fiscal policy. If governments withhold an expansionary fiscal policy, central banks do not have to run a contractionary monetary policy, avoiding the deflationary pressure that would otherwise be created by their contractionary monetary policy.

Furthermore, party governments’ restrained fiscal policy releases monetary policy for use as a countercyclical tool rather than as a tool to control inflation. Freed from the inflationary concerns from party governments’ expansionary fiscal policy, central banks can actively use monetary policy to promote economic growth in exchange for party governments’ fiscal restraint. Thus, central banks do not have to conduct a contractionary monetary policy, and governments do not have to run high deficits that could drive up interest rates and suppress investment and growth.

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