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Central Bank Credit to the Government: What Can We Learn from International Practices?

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Author Info

  • Marcela Matamoros-Indorf
  • Mrinalini Sharma
  • Simon Baker Townsend
  • Luis Ignacio Jácome

Abstract

Using a central bank legislation database, this paper documents and analyzes worldwide institutional arrangements for central bank lending to the government and identifies international practices. Key findings are: (i) in most advanced countries, central banks do not finance government expenditure; (ii) in a large number of emerging and developing countries, short-term financing is allowed in order to smooth out tax revenue fluctuations; (iii) in most countries, the terms and conditions of these loans are typically established by law, such that the amount is capped at a small proportion of annual government revenues, loans are priced at market interest rates, and their maturity falls within the same fiscal year; and (iv) in the vast majority of countries, financing other areas of the state, such as provincial governments and public enterprises, is not allowed. The paper does not address central banks' financial support during financial crises.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/16.

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Length: 44
Date of creation: 01 Jan 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/16

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Related research

Keywords: Central bank legislation; Bank credit; Developed countries; Developing countries; Emerging markets;

This paper has been announced in the following NEP Reports:

References

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  1. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, January.
  2. Cukierman, A. & Miller, G.P. & Neyapti, B., 2000. "Central Bank Rerform, Liberalization and Inflation in Transition Economies - an International Perspective," Papers 00-19, Tel Aviv.
  3. Marco Arnone & Bernard J Laurens & Jean-Fran�ois Segalotto & Martin Sommer, 2009. "Central Bank Autonomy: Lessons from Global Trends," IMF Staff Papers, Palgrave Macmillan, vol. 56(2), pages 263-296, June.
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