High US Interest Rates and Fiscal and Monetary Policy Mix in Three Largest Economies in the Early 1980s

This chapter reveals intensified debates within the OECD Secretariat and among national delegates attending OECD meetings on how monetary and fiscal policy should be run in Japan and West Germany in the early 1980s when a combination of high US interest rates and a high dollar exchange rate prevailed under the new monetary control method introduced by the Federal Reserve led by Chairman Paul Volcker in October 1979 in the context of the fight against US inflation. A somewhat detailed account is offered of the different arguments then made by the author about the desirable pattern of fiscal and monetary policy mix in Japan from the view expressed by the Economic Adviser to the OECD Secretary-General at OECD meetings and elsewhere.