Sovereign Debt Management as an Instrument of Monetary Policy: An Overview

22 Pages Posted: 20 Jun 2012

See all articles by Fabrizio Zampolli

Fabrizio Zampolli

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: May 2012

Abstract

The composition of public debt by maturity is irrelevant in the standard New Keynesian model of monetary policy. Nevertheless, central banks have, since the outset of the crisis, purchased large amounts of government bonds in the attempt to support economic activity and stem deflationary pressures. Such moves have often been justified by appealing to portfolio rebalancing effects, which are not well understood at a conceptual level. Without better theory, assessing their empirical relevance might also prove elusive. This paper reviews what theory has to say about the role of sovereign debt management as a tool of monetary policy.

Full publication: Threat of fiscal dominance?

Keywords: Public debt, portfolio rebalancing effects, money, liquidity, Tobin, Friedman, preferred habitat, term structure of interest rates

JEL Classification: E4, E5, E6, H63

Suggested Citation

Zampolli, Fabrizio, Sovereign Debt Management as an Instrument of Monetary Policy: An Overview (May 2012). BIS Paper No. 65f, Available at SSRN: https://ssrn.com/abstract=2078932

Fabrizio Zampolli (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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