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A MONETARY AND FISCAL FRAMEWORK FOR ECONOMIC STABILITY INTRODUCTION During the 19th and ear ! "#th $entur!

% &r'( e)* '+ the da! ed e$'n')i*t* t' $'n$entrate 'n a '$ati'n '+ re*'ur$e*% e$'n')i$ gr',th and &a! attenti'n t' *h'rt run + u$tuati'n*- *in$e great de&re**i'n . 19/#% thi* e)&ha*i* re0er*edn', the e$'n')i*t* had t' $'n$entrate 'n $!$ i$a )'0e)ent* had t' a$t 'n $'ntr' '+ the $!$ e % 'ng run e++i$ien$! and a *' (ring a('ut &r'*&e$t* +'r gr',th '+ the e$'n')i$ *!*te)- he ga0e 'ng run '(1e$ti0e* 2

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g'0ern)ent )u*t &r'0ide )'netar! +ra)e,'r3 +'r $')&etiti0e 'rder thi* )'netar! +ra)e,'r3 *h'u d '&erate under ru e '+ a, t' redu$e ine4ua it! in the +ree $')&etiti0e )ar3et

T5E 6RO76OSAL F'ur )ain e e)ent*

,ith regard t' )'netar! *!*te) a re+'r) in )'netar! and (an3ing *!*te) i* t' e i)inate ('th $reati'n 'r de*tru$ti'n '+ )'ne! and di*$reti'nar! $'ntr' '+ 4uantit! '+ )'ne! (! $entra (an3 auth'rit! - t' $')& ete e i)inati'n '+ )a1'r ,ea&'n* '+ di*$reti'nar! auth'rit!% e8i*ting &',er t' engage in '&en )ar3et '&erati'n* and e8i*ting dire$t $'ntr' * '0er *t'$3 )ar3et,ith regard t' g'0ern)ent e8&enditure* 'n g''d* and *er0i$e*. de+ined t' e8$ ude tran*+er e8&enditure* 'n the (a*i* '+ $'))unit!9* de*ire% need and ,i ingne** t' &a! +'r &u( i$ *er0i$e*- $hange* *h'u d (e )ade '+ e8&enditure* and *h'u d )a3e a terati'n* t' 0a ue* atta$hed t' &u( i$ *er0i$e* and &ri0ate $'n*u)&ti'n,ith regard t' g'0ern)ent tran*+er &a!)ent* $'n*i*ting '+ $'nditi'n* and ter)* under ,hi$h re ie+ and a**i*tan$e and 'ther tran*+er &a!)ent* ,i (e grantedhere a terati'n* *h'u d (e )ade t' *'$ia *e$urit!% &a!)ent +'r ' d age and une)& '!)ent in*uran$e ,ith tran*+er '+ e8&enditure - A terati'n* *h'u d (e )ade ,ith regard t' e**en une)& '!)ent % en'ugh &a!)ent +'r ' d. age and *'$ia *e$urit! ,ith regard t' &r'gre**i0e ta8 *!*te) *h'u d & a$e &er*'na in$')e ta8- e++'rt *h'u d (e )ade t' $' e$t a* )u$h &'**i( e ta8 (i at *'ur$e and )ini)i*e de a! (et,een a$$rua '+ ta8 ia(i it! and a$tua $' e$ti'n '+ ta8-

O6ERATION OF T5E 6RO6OSAL Under the &r'&'*a g'0ern)ent e8&enditure* ,'u d (e +inan$ed (! ta8 re0enue* 'r $reati'n '+ )'ne! that i* i**ue '+ n'n.intere*t (earing *e$uritie* that i* the g'0ern)ent ,'u d n't i**ue intere*t (earing *e$uritie* t' the &u( i$% the +edera re*er0e *!*te) ,'u d n't '&erate in the '&en )ar3et - an'ther rea*'n gi0en +'r intere*t (earing *e$uritie* i* that the &eri'd '+ une)& '!)ent it i* e** de+ ati'nar! t' i**ue *e$uritie* than t' e0! ta8e*

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