Public Liquidity Demand and Central Bank Independence
46 Pages Posted: 14 Jan 2020
Date Written: January 2020
This paper studies how private demand for public liquidity affects the independence of a central bank vis-à-vis the fiscal authority. Whereas supplying liquidity to the private sector creates degrees of freedom for fiscal and monetary authorities vis-à-vis each other, we show that the authority that is most able to attract private liquidity demand can ultimately impose its views to the other.
Keywords: Central Bank Independence, Low Rates, Game of Chicken, Demand for Liquidity
JEL Classification: E50; E42; E63; C72
Suggested Citation: Suggested Citation