Central Banks Quasi-Fiscal Policies and Inflation
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
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.
Series:
Working Paper No. 2012/014
Subject:
Asset prices Banking Bonds Central bank balance sheet Central banks Financial institutions Inflation Prices Quasi-fiscal operations
Frequency:
Monthly
English
Publication Date:
January 1, 2012
ISBN/ISSN:
9781463931193/1018-5941
Stock No:
WPIEA2012014
Pages:
35
Please address any questions about this title to publications@imf.org