Monetary and Fiscal Policy for Sovereign Currencies: What Should Government Do?

In this chapter we will turn to what government ought to do. This chapter will specifically treat only sovereign government—one that issues its own floating rate currency. From the chapters above, that will make it clear that we are addressing only a government that does not face an affordability constraint. The floating rate regime provides the greatest domestic policy space. Nations that peg or manage their exchange rates might have less policy space, depending on their own situation.