"In a model which exhibits many monetarist properties it is shown that monetary and fiscal policies must be coordinated. The model is populated by overlapping generations of three-period lived agents who can hold fiat money, fiat bonds, and physical capital. A government produces a public good...

We use a simple model to show why previous empirical studies of budget policy effects are flawed. Due to an identification problem, those studies' findings can be shown to be consistent with policies either mattering or not. We argue that this problem is difficult and not likely to be resolved soon.