Deregulation and Macroeconomic Policy

Abstract

This chapter brings together a number of arguments that may be raised about the impact of various forms of financial deregulation on the efficacy of monetary policy for achieving the principal macroeconomic objectives, including its relative effectiveness as compared with fiscal policy. These considerations may thus have a bearing on the relative effects of monetary policy compared with fiscal instruments, and so on the choice of policy mixes. Even though some of these arguments are in principle fairly widely discussed and presumably widely accepted, there is reason to believe that, in some countries at least, their implications for the appropriate choice of macroeconomic measures (especially as to the best combinations of measures for reducing a current account deficit) have not been properly absorbed into the thinking of policy makers and their advisers.

I am indebted to Jerry Stein for very helpful discussions about a number of the matters raised in this chapter. I am of course alone responsible for remaining deficiencies. I have discussed several of these issues further in The Deregulation of the Australian Financial System, Melbourne University Press, 1989.