Economic Policies- monetary and fiscal policy around the world
MONETARY policy is typically implemented by a central bank, while FISCAL policy decisions are set by the national government. Still, both monetary and fiscal policy may be used to influence the performance of the economy in the short run.
Norway has a constitutional monarchy as their government system in which a monarch is guided by a constitution whereby his/her rights, duties, and responsibilities are spelled out in written law or by custom. In such form of government, the Head of State’s ceremonial and official duties are separated from party politics. It is able to provinces stability, continuity and a national focus, as the Head of State remains constant even though government changes. Different from Norway, United States has constitution-based federal republic. A constitution based federal republic is a system in which people vote for government officials to represent themselves which holds to be accountable based on the laws of the constitution. The federal government is consist of three distinct branches which are further defined by acts of Congress.
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In the United States of America, the Congress established maximum employment and price stability as the macroeconomic objectives for Federal Reserve. However, the congress determined that operational conduct of monetary policy should be free from the political influence, so Federal Reserve ended up being an independent agency of the federal government. Federal Reserve uses various policy tools such as the target for the federal funds fate, a key short-term interest rate. They controls over the federal funds rate giving it the ability to influence the general level of short-term market interest rates. Such changes in financial conditions then affects the spending decisions of households and businesses. In which the monetary policy making body considers how the current and projected paths for fiscal policy might affect key macroeconomic variables, the fiscal policy has an indirect effect on the conduct of monetary policy through its influence on the aggregate economy and the economic outlook.
In Norway, Norges Bank’s implementation of monetary policy shall be aimed at maintaining low and stable inflation. In such way monetary policy will contribute to stable expectations concerning exchange rate developments, and to stable development in output and employment. Monetary policy is purposed to be forward looking and, having direct effects on consumer prices stemming from changes in interest rates, taxes, etc. Fiscal policy is regulated to all petroleum revenues to be directed into the Norwegian government pension fund, and also the capital in the fund is to be invested abroad to avoid strong effects on the mainland economy and the exchange rate. The actual implementation of fiscal policy shall take into account business cycle fluctuation around the suggested medium-term path.
Both countries seems to have successful policies on effecting the economy, however I think Norway which “aim at maintaining low and stable inflation” which will contribute to stable development in economy be the one which has implemented the most preferable economic policy. Norway having set expectations toward the challenges of declining petroleum revenues and increase on pensions and health care, such as for “a large share of the high petroleum revenues” to be transferred to “The Government Petroleum Fund”. For positive and forward looking development in economy, the governments should try to manipulate the economy. For example, in US, the Federal Reserve exists to maintain a stable and growing economy through price stability and full employment. In History, they has done his by manipulating short-term interest rates and developed new tools to fight economic crisis during the subprime crisis of 2007. As such, it is historically proved that the government’s intervention in economy could be helpful as a whole nation to help the economy in depression.
SOURCES
http://www.royal.gov.uk/monarchuk/howthemonarchyworks/whatisconstitutionalmonarchy.aspx
http://www.answers.com/Q/Explain_a_constitution_based_federal_republic
http://en.wikipedia.org/wiki/Federal_government_of_the_United_States
https://www.cia.gov/library/publications/the-world-factbook/fields/print_2128.html
http://countrystudies.us/united-states/economy-7.htm
http://www.federalreserve.gov/faqs/money_12855.htm
http://www.imf.org/external/pubs/ft/scr/2013/cr13272.pdf
http://www.eu-norway.org/eu/policyareas/Economic_and_Monetary_Policy/#.VLoMuWSUfTE
http://search.usa.gov/search?affiliate=usagov&query=monetary+fiscal+policy
http://www.colorado.edu/ibs/eb/alston/econ8534/SectionX/Fishback,_US_monetary_and_fiscal_policy_in_the_1930s.pdf
http://www.frbsf.org/education/publications/doctor-econ/2002/march/fiscal-monetary-policy
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http://www.investopedia.com/articles/economics/08/monetary-policy-recession.asp
http://www.wsj.com/articles/SB10001424052702303738504575568122743023374?autologin=y
https://www.quandl.com/c/norway/norway-economy-data