Fiscal policy can be a major force for good, when it provides the stable foundation for a thriving economy, but it can also cause great harm by adding to inflationary pressures, which would inevitably call for an even stronger monetary policy response. Monetary and fiscal policies need to work together to shore up macroeconomic stability.
The coherence of monetary and fiscal policy is essential for macroeconomic stability. During the pandemic, we have seen how powerfully combined monetary and fiscal efforts helped our economies quickly get out of recession. But it is not only during downturns that monetary and fiscal policy need to coordinate their actions to effectively complement each other.