Just one instance triggers the link.

Leaning too heavily on extreme cases can lull us into the belief that as long as monetary policy decisions are independent of political leaders, the economy is insulated from fiscal dominance. This policy brief led with three subtle examples of fiscal dominance to make this point: each case involved an operationally independent central bank. Fiscal dominance need not imply fiscal policy run amok. It can arise anytime policy makes the path of primary budget surpluses impervious to economic conditions such as inflation.

Monetary policy independence is a bulwark but not an impenetrable barrier against fiscal dominance. The Reagan administration began with inconsistent plans for monetary and fiscal policy (Sargent 1986). At the same time that the administration supported Federal Reserve Chair Paul Volcker’s goal of wringing inflation out of the economy through tight monetary policy (monetary dominance), it announced tax cuts and defense spending increases that implied a persistent path of primary deficits (fiscal dominance). Two dominant policies cannot coexist indefinitely because they cannot achieve the prime directive: each policy requires a different inflation path and neither policy stabilizes debt. Sargent credits Neil Wallace with describing the conflict between policies as a game of chicken. Which policy would flinch to avoid an economic crash? As Sargent (1986, 36) put it, “Reaganomics was not credible because it was not feasible.”