Public Debt, Inflation and the Coordination of Fiscal and Monetary Policies

In most industrial countries two distinct institutions, the central bank and the government, design and implement fiscal and monetary policies. The degree of independence between the central bank and the government varies among countries depending on historical and institutional considerations. For instance the Deutsche Bundesbank and the Federal Reserve Bank have a well established reputation of independence compared to the Bank of England and the Bank of France. But even these latter retain some autonomy in choosing their operating procedures and instruments. Thus the fiction of a single policymaker underlying the traditional approaches to the optimal coordination between fiscal and monetary policies should be abandoned.