Public Liquidity Demand and Central Bank Independence

Barthélemy, Jean; Mengus, Eric; Plantin, Guillaume

doi:10.2139/ssrn.3518309

Cited by 3 publications

(2 citation statements)

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“…23 The case r-g<0 has attracted attention because interest rates on public debt have been persistently low -essentially the same phenomenon as the secular decline in the natural rate. See Blanchard (2019), Sims (2019), Barthélemy et al (2019) and Reis (2020).…”

Section: Monetary-fiscal Policy Interactions With Large Public Debtmentioning

confidence: 99%

Monetary-Fiscal Policy Interactions in the Euro Area

et al. 2021

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The last review of the ECB's monetary policy strategy in 2003 followed a period of predominantly upside risks to price stability. Experience following the 2008 financial crisis has focused renewed attention on the question of how monetary and fiscal policy should best interact, in particular in an environment of structurally low interest rates and persistent downside risks to price stability. This debate has been further intensified by the economic impact of the coronavirus (COVID-19) pandemic. In the euro area, the unique architecture of a monetary union consisting of sovereign Member States, with cross-country heterogeneities and weaknesses in its overall construction, poses important challenges.12 Tax policy may also substitute interest rate policy to change real interest rates (the cost of current consumption in terms of future consumption), even in the case of balanced budgets. See Feldstein (2002) and Correia et al. (2013).

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Section: Monetary-fiscal Policy Interactions With Large Public Debtmentioning

confidence: 99%

Monetary-Fiscal Policy Interactions in the Euro Area

et al. 2021

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“…Relative to this paper, I add an expenditure bias and a theoretical analysis that includes taxation; in the quantitative section I also allow for a non-benevolent central bank. Finally, Barthélemy et al (2020) formalizes Neil Wallace's game of chicken between the fiscal and monetary authorities. They also identify circumstances where there is fiscal dominance.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Dominance

Martin¹

2020

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Who prevails when fiscal and monetary authorities disagree about the value of public expenditure and how much to discount the future? When the fiscal authority sets debt as its main policy instrument it achieves fiscal dominance, rendering the preferences of the central bank, and thus its independence, irrelevant. When the central bank sets the nominal interest rate it renders fiscal impatience (its debt bias) irrelevant, but still faces its expenditure bias. I find that the expenditure bias is about an order of magnitude more severe than the debt bias and has a major impact on welfare through higher public spending, while the effect on other policies is relatively minor. I also find that the central bank can do little to overcome the negative impact of the fiscal authority's expenditure bias, though there are still gains from properly designing the central bank.

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What Bird is That? Central Banking and Monetary Policy in the Last Forty Years

Masciandaro

2020

SSRN Journal

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Public Liquidity Demand and Central Bank Independence

Cited by 3 publications

References 24 publications

Monetary-Fiscal Policy Interactions in the Euro Area

Monetary-Fiscal Policy Interactions in the Euro Area

Fiscal Dominance

What Bird is That? Central Banking and Monetary Policy in the Last Forty Years

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