Sometimes fiscal and monetary policy are coordinated and row in the same direction. Rowing together is great when the boat is headed in the right direction; it can be a disaster when the boat is headed in the wrong direction. Coordinated policy was good for the economy during the Global Financial Crisis in 2009, but it was a tragedy in the early years of the Great Depression.
At other times, fiscal and monetary policies row in opposite directions, as in the Volcker disinflation of the late 1970s and early 1980s or the Clinton fiscal consolidation of the early 1990s. Such rowing apart can be beneficial if one type of policy is going astray or if needed fiscal adjustments threaten to harm the economy.
Christina Romer, Class of 1957-Garff B. Wilson Professor Emerita of Economics at the University of California, Berkeley, reprises the history of fiscal and monetary policy coordination in the U.S. from the 1930s to the 2020s in an essay adapted from an address she gave at the Reserve Bank of Australia’s Annual Research Conference in September 2025.
From her survey of the history, she draws four lessons:
Lesson 1: Policy coordination is not sufficient to ensure good economic outcomes.
Lesson 2: Economic ideas matter.
Lesson 3: Because policy mistakes occur, the independence of central banks is vital.
Lesson 4: Successful policy coordination demands accurate data and honest information on the federal budget.
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