Economic policy is all about mixing and matching. The trick is to get the mix just right between monetary policy and fiscal policy so that they match and complement each other nicely.
The mixture can take a variety of forms. You can have a tight monetary policy coupled with a cut-loose fiscal policy, or vice versa. You can also have monetary and fiscal policies both going the same way: a combination of low interest rates and big budget deficits strikes a familiar chord.
The last combination is, in fact, the kind that we have been using in Japan for quite some time. Interest rates are virtually nonexistent. Meanwhile, the government's budget deficit is running at alarmingly close to 10 percent of Japan's GDP.
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