Policy mix

Public finance
Policies Agricultural Economic Energy Industrial Investement Social Trade Fiscal Monetary Policy mix
Fiscal policy Budget policy Debt external internal Deficit / Surplus Finance ministry Fiscal union Revenue Spending deficit Tax
Monetary policy Bank reserves (requirements) Discount window Gold reserves Interest rate Monetary authority central bank currency board Monetary base Monetary (currency) union Money supply
Trade policy Balance of trade Free trade Gains from trade Non-tariff barrier Protectionism Tariff Trade bloc Trade creation Trade diversion Trade / Commerce ministry
Revenue Spending Non-tax revenue Tax revenue Discretionary spending Mandatory spending
Optimum Balanced budget (fiscal) Growth (trade and investment) Price stability (monetary)
Reform Fiscal adjustment Monetary reform

The policy mix is the combination of a country's monetary policy and fiscal policy. These two channels influence growth and employment, and are generally determined by the central bank and the government (e.g., the United States Congress) respectively.^[1]

Ideally, the policy mix should aim at maximizing growth and minimizing unemployment. However, the central banks and governments are sometimes theorized to have different time horizons, with the elected governments having a shorter time range. Both can have other objectives and must apply to some constraints, diverting them from these primary objectives: obeying a deficit rule, securing the financial sector, courting popularity, etc.

Monetary policy is typically carried out by the central bank which controls interest rates and the money supply to balance control of inflation and unemployment. The government determines labour market conditions, public investment and public spending, automatic stabilizers and discretionary fiscal policy.

Central bank independence is generally held to be positive, because it prevents a single authority from simultaneously issuing debt and paying it off with newly created money, which would be inflationary.^[2]

References