The role of fiscal policy Let me conclude my remarks by referring to the role of fiscal policy to extricate Japan from deflation. We observe that the government announced the fiscal policy target to achieve a primary budget deficit of zero in about ten years, and the automatic stabilizer effect dominated fiscal policy management after 2001 under the Koizumi administration.
The coordination between monetary and fiscal policy becomes more important, if the economy were to fall into deflationary equilibrium (or the Friedmanian equilibrium), where the size of deflation rate is equal to the natural interest rate. On fiscal policy, we can identify the two different types; namely, the Ricardian and the non-Ricardian.