ALL POLITICS IS LOCAL - THE EFFECT OF FISCAL AND MONETARY CONSTITUTIONS ON ECONOMIC-POLICY

The rules of behavior for the monetary authorities changed in 1933 and 1047 and the Fed temporarily changed its operating procedures in 1979 , but these changes did not alter the fact that the monetary authoriti es sen-e as the agent of the fiscal authorities. On tile fiscal side, a shift from a centralized process to one where Congress was composed of a set of individual entrepreneurs altered the fiscal focus from the national economy to one of localized. interests. This change led to a more autoregressive and deficit-prone federal budget and changed the inter action between monetary and fiscal policy. It also elevated the status of monetary policy to the extent where financial markets react to every utterance from the monetary authorities.