Monetary-fiscal policy co-operation and the ‘slippery slope’

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The strict separation of monetary and fiscal policies is a time-honoured principle of central banking. Central bankers should stick to their monetary knitting, it instructs, and let those responsible for the budget go about their separate business. 

Such separation has not always been strict. As recently as two decades ago, many central banks essentially acted as branches of their national treasuries. It took the unhappy experience of inflation in the 1970s and 1980s to alter this status quo

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