Coordinated Monetary and Fiscal Framework for Debt Management

This paper outlines a proposal for a coordinated macroeconomic policy framework aimed at achieving long-term debt sustainability while promoting maximum employment and stable inflation. The strategy involves a rule-based Open Market Operations (OMO) policy for the central bank, combined with a benchmarked fiscal taxation policy with automatic adjustments. This framework seeks to address the limitations of relying solely on either monetary or fiscal policy, enhance predictability, and maintain central bank independence within a defined structure. Drawing upon established economic concepts such as fiscal rules, and the importance of central bank credibility, this paper presents a practical and systematic approach for policymakers. This approach aims to stimulate the economy during weak and normal phases while ensuring that excess liquidity is later harvested through targeted taxation and debt reduction once growth materializes. This framework prevents overburdening strained economies with new taxes while enhancing fiscal sustainability.