“In normal times I think it is very important that there be a separation between monetary and fiscal policy. And it is a primary reason for independence of the central bank. We’ve seen all too many examples of countries that end one high or even hyperinflation because of those in charge of fiscal policy direct their central bank to help them finance it by printing money and maintaining price stability and low and stable inflation is very much aided by having central bank independence.
Now that said, in unusual times where the concern is with very weak growth or possibly deflation, rather rare circumstances — first of all, fiscal policy can be a very important tool. And it is natural that it can be employed that just as monetary policy is doing a lot to try to stimulate growth that fiscal policy should play a role. And normally you would hope in an economy with those severe downside risks, monetary and fiscal policy would not be working at cross-purposes to get together.
Now whether or not in such extreme circumstances there might be a case for close coordination where the central bank playing a role in financing fiscal policy. This is something that academics are debating. And it is something that one might legitimately consider. I would see this as a very abnormal, extreme situation where goes in an all-out attempt — and even then it’s a matter that academics are debating — only in an unusual situation.”
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