Abstract

An appropriate combination of fiscal and monetary policy should be a hallmark of any government's economic policy. Although it is not feasible in practice to determine a single correct policy mix, continuous efforts are made to evaluate, mostly ex post, the relationships between the two policies. The paper undertakes to assess these relationships as exemplified by Poland after 1989. The period under consideration has been broken down into several sub-periods: 1989-1992, 1993-1997, 1998-2004 and 2005-2006, based on the underlying developments in the country's economy, such as the effective reversal of the declining trend in gross domestic product in the early years of economic system transformation, the initiation of far-reaching structural changes in the public finance sector, and the accession into the European Union. An analysis of the interdependencies between fiscal and monetary policy leads to an observation that their mutual relationship was volatile and not very firm. While monetary policy was focused on combating inflation and proved effective in achieving this objective, fiscal policy pursued distinctly different goals of its own (such as improving the use of public funds and reducing the public sector deficit) and did so with varying success. This was a result of, primarily, limited - at least at the initial phase of system transformation - exposure to market mechanisms, and secondly, of political interventions which prevented the successive ministers from applying consistent measures toward achieving goals which contemporary fiscal policy will seek to achieve. Regretfully, the period following Poland's accession into the EU does not inspire optimism with respect to achieving these goals. Fortunately, there are grounds to believe that the relationships between the policies in question naturally tend to improve under low inflation, which has been the case in recent years in Poland. (original abstract)