Advanced Search
MyIDEAS: Login to save this book or follow this series

Threat of fiscal dominance?

Contents:

Author Info

  • Bank for International Settlements
Registered author(s):

    Abstract

    The massive expansion of central bank balance sheets to contain the worst financial crisis in living memory raises questions about the theory and practice of monetary policy. The persistence in many advanced countries of large fiscal deficits and the prospect of high public debt/GDP ratios for many years is likely, at some point, to create policy dilemmas not only for central banks but also for public debt managers. Some countries have already had to cope with higher sovereign risk. Worries about both "fiscal dominance" and "financial repression" have certainly gained ground. Whatever view is taken of this, the boundary between monetary policy and government debt management has become increasingly blurred. Policy interactions have changed in ways that are difficult to understand. The current delineation of policy mandates may need to be reassessed. The aim of this BIS-OECD workshop was to better understand these issues. Theoretical perspectives draw on a long and rich body of monetary theory, but the theory is far from settled. Analysis of the history of fiscal/debt/monetary policy interconnections shows how such linkages have varied across countries and over time - there is no "one size fits all". And careful review of empirical studies shows that precise estimates of the impact of large-scale central bank purchases of government bonds need to be treated with caution. There is great uncertainty about the impact of increased government debt on inflation, on interest rates and on future growth. Much will depend on future policies. Do monetary policies need to be better coordinated with other macroeconomic or financial policies? Could government financing decisions and financial sector regulation drive the long-term interest rate too low, at least in the short-term? What medium-term risks could this create? What could be the implications for the efficiency and stability of the financial system? The papers and discussions in this volume do not, of course, converge on simple answers to any of these questions. Indeed, opposite views are expressed. The aim rather is to stimulate discussion about the complex interactions between fiscal deficits, government debt management and monetary policy in unusual macroeconomic circumstances. Some of these interactions are new, but many would be very familiar to an earlier generation of central bankers faced with heavy government debts and thin financial markets.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.bis.org/publ/bppdf/bispap65.pdf
    File Function: Full PDF document
    Download Restriction: no

    File URL: http://www.bis.org/publ/bppdf/bispap65.htm
    Download Restriction: no

    Bibliographic Info

    as in new window
    This book is provided by Bank for International Settlements in its series BIS Papers with number 65 and published in 2012.

    ISBN: 92-9131-135-9
    Handle: RePEc:bis:bisbps:65

    Contact details of provider:
    Postal: Centralbahnplatz 2, CH - 4002 Basel
    Phone: (41) 61 - 280 80 80
    Fax: (41) 61 - 280 91 00
    Email:
    Web page: http://www.bis.org/
    More information through EDIRC

    The following chapters of this book are listed in IDEAS:

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Hau, Harald & Massa, Massimo & Peress, Joël, 2005. "Do Demand Curves for Currencies Slope Down? Evidence from the MSCI Global Index Change," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4862, C.E.P.R. Discussion Papers.
    2. Farooq Ahmad & James Steeley, 2008. "Secondary market pricing behaviour around UK bond auctions," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(9), pages 691-699.
    3. Diebold, Francis X. & Rudebusch, Glenn D. & Borag[caron]an Aruoba, S., 2006. "The macroeconomy and the yield curve: a dynamic latent factor approach," Journal of Econometrics, Elsevier, Elsevier, vol. 131(1-2), pages 309-338.
    4. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-study Analysis of Operation Twist and Its Implications for QE2," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 151-207.
    5. Joyce, Michael & Lasaosa, Ana & Stevens , Ibrahim & Tong, Matthew, 2010. "The financial market impact of quantitative easing," Bank of England working papers 393, Bank of England.
    6. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports, Federal Reserve Bank of New York 441, Federal Reserve Bank of New York.
    7. Jonathan H. Wright, 2011. "What does Monetary Policy do to Long-Term Interest Rates at the Zero Lower Bound?," NBER Working Papers 17154, National Bureau of Economic Research, Inc.
    8. António Afonso & Manuel M. F. Martins, 2010. "Level, Slope, Curvature of Sovereign Yield Curve and Fiscal Behaviour," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2010/23, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
    9. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers, Federal Reserve Bank of St. Louis 2010-018, Federal Reserve Bank of St. Louis.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bis:bisbps:65. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Timo Laurmaa).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.