Coordination of monetary and fiscal policies

Macroeconomic policies are designed to achieve stable, non-inflationary growth. Monetary instruments are employed by the central bank and fiscal instruments are employed by the ministry of finance. The objectives and implications of the measures taken by the two institutions often conflict with each other and therefore call for policy coordination for the effective implementation of policy decisions to achieve the set objectives. Policy coordination needs to be supported by concrete and operational institutional arrangements such as a monetary and fiscal coordination council. This work describes a theoretical overview of monetary and fiscal policy coordination, taking into account the effect of the interaction between monetary and fiscal policy that can take the form of permanent contacts between monetary and fiscal authorities to jointly decide on aspects related to policy design and implementation.