Thus, conditional on the swap arrangement being in force, open-market purchases of government bonds by the BOJ would combine an expansionary monetary policy with a reduction of interest-rate risk in the banking system at no 8 budgetary cost. The simple step of immunizing the BOJ's balance sheet thus opens a number of interesting policy options.
To be meaningful and effective, fiscal rules should be based on a sound economic rationale and be sufficiently flexible to allow for appropriate policy responses. But good fiscal rules should also be sufficiently simple, clear and enforceable.