Central Banks Quasi-Fiscal Policies and Inflation

January 1, 2012

Preview Citation

Format: Chicago

Seok G Park. Central Banks Quasi-Fiscal Policies and Inflation, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Although central banks have recently taken unconventional policy actions to try to shore up macroeconomic and financial stability, little theory is available to assess the consequences of such measures. This paper offers a theoretical model with which such policies can be analyzed. In particular, the paper shows that in the absence of the fiscal authorities' full backing of the central bank's balance sheet, strange things can happen. For instance, an exit from quantitative easing could be inflationary and central banks cannot successfully unwind inflated balance sheets. Therefore, the fiscal authorities' full backing of the monetary authorities' quasi-fiscal operations is a pre-condition for effective monetary policy.

Subject: Asset prices, Banking, Bonds, Central bank balance sheet, Central banks, Financial institutions, Inflation, Prices, Quasi-fiscal operations

Keywords: Asset account, Asset maturity structure, Asset prices, Asset return, Bonds, Budget constraint, Central bank balance sheet, Central bank’s balance sheet, Equilibrium price, Fiscal theory of price level, Government bonds holding, Inflation, Liability value, Loss function, Monetary policy behavior, Net liability valuation formula, Price level, Quasi-fiscal operations, Quasi-fiscal policy, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/014
Stock No:

WPIEA2012014
ISBN:

9781463931193
ISSN:

1018-5941

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