Role of fiscal and monetary policy

Abstract

This paper applies the GS-PD framework of Ho (1988) to show that the so-called 'battle of ideas' between 'Keynesians', who believe in intervention, and the champions of the market, who believe in non-intervention, as popularly depicted, diverts attention from the crux of the matter. It shows how monetary and fiscal policies have to be coordinated in specific situations and why some macroeconomic problems may require responses beyond the purview of monetary and fiscal policies. © 2006 Blackwell Publishing Ltd.