Can the Central Bank Alleviate Fiscal Burdens?

48 Pages Posted: 8 Sep 2017

See all articles by Ricardo Reis

Ricardo Reis

London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Date Written: August 16, 2017

Abstract

Central banks affect the resources available to fiscal authorities through the impact of their policies on the public debt, as well as through their income, their mix of assets, their liabilities, and their own solvency. This paper inspects the ability of the central bank to alleviate the fiscal burden by inuencing different terms in the government resource constraint. It discusses five channels: (i) how inflation can (and cannot) lower the real burden of the public debt, (ii) how seignorage is generated and subject to what constraints, (iii) whether central bank liabilities should count as public debt, (iv) how central bank assets create income risk, and whether or not this threatens its solvency, and (v) how the central bank balance sheet can be used for fiscal redistributions. Overall, it concludes that the scope for the central bank to lower the fiscal burden is limited.

Keywords: Monetary Policy, Reserves, Interest Rates, Quantitative Easing

JEL Classification: E580, E630, E520

Suggested Citation

Reis, Ricardo A.M.R., Can the Central Bank Alleviate Fiscal Burdens? (August 16, 2017). CESifo Working Paper Series No. 6604. Available at SSRN: https://ssrn.com/abstract=3033490

Ricardo A.M.R. Reis (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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