Fiscal "alchemy" must mimic monetary science -paper

JACKSON HOLE, Wyo., Aug 28 (BestGrowthStock) – Tax and budget
policies need the same regularity and independence as monetary
policy if countries around the world are to cope with looming
stresses from pension programs, world central bankers were told
at a Federal Reserve conference on Saturday.

“Modern monetary research and practical policy-making are
united in aiming to make monetary policy scientific,” said
Indiana University Economics Professor Eric Leeper in a paper.
“No analogous transformation has occurred with macro fiscal
policy.”

Leeper presented his paper at an annual conference held by
the U.S. Federal Reserve in Jackson Hole, Wyoming.

His view will have resonance for policy-makers who in many
countries have already cut interest rates to historically low
levels and launched extensive asset purchase programs to
stimulate growth. With prospects for new fiscal stimulus
programs politically unpopular, central bankers are considering
additional measures to ease financial conditions to support
flagging recoveries in many countries represented at the
conference.

In addition, U.S. politicians have for many years debated
without resolution whether to raise taxes or cut benefits to
the Social Security and Medicare retiree pension and health
care programs, which face stiff financial challenges as the
baby boom generation retires.

Fiscal policy can have as strong an effect on economic
activity and inflation as monetary policy decisions, Leeper
said.

Central bankers are likely to have to pay more attention to
taxation and budgeting in the future as the stresses from the
financial obligations of retirement programs increase, he
said.

Since there is general agreement that central bank
decisions should be made without political meddling, financial
markets can be reasonably confident of policy makers’ responses
to a slowdown in economic growth or a rise in inflation, Leeper
said.

However, no such predictability exists for fiscal policy,
which can shift with political winds.

“There is a fairly clear consensus on the objectives of
monetary policy, but none for fiscal policy,” Leeper wrote.

“Governments devote shockingly few resources into
understanding fiscal policy’s impacts,” he wrote.

He urged central bankers to be more outspoken on fiscal
issues, reversing their preference for wading into politically
sensitive areas.

“Central bankers have a role to play … They can break
away from the taboo against saying anything substantive on
fiscal policy,” he wrote.
(Reporting by Mark Felsenthal; Editing by Leslie Adler)

Fiscal "alchemy" must mimic monetary science -paper