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Fiscal Implications of the ECB’s Bond Buying Program

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  • Paul De Grauwe
  • Yuemei Ji

Abstract

The perception that the government bond buying program (OMT) announced by the ECB may lead to future tax burdens on countries, in particular on Germany, is based on an erroneous application of solvency principles that apply to private agents, but not to central banks. We argue that the creditor nations’ taxpayers, in particular the German taxpayers, will receive tax revenue from the implementation of the OMT. We also measure the size of the bond-buying program that is compatible with price stability. It turns out that this estimate critically depends on whether the Eurozone stays in a liquidity trap situation or not. Today, as the Eurozone is still in a liquidity trap there is no limit to the amount of government bonds the ECB can buy without triggering inflation. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Paul De Grauwe & Yuemei Ji, 2013. "Fiscal Implications of the ECB’s Bond Buying Program," Open Economies Review, Springer, vol. 24(5), pages 843-852, November.
    • Handle: RePEc:kap:openec:v:24:y:2013:i:5:p:843-852
    DOI: 10.1007/s11079-013-9284-6
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    References listed on IDEAS

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    1. Mr. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 1997/083, International Monetary Fund.
    2. Buiter, Willem, 2008. "Can Central Banks Go Broke?," CEPR Discussion Papers 6827, C.E.P.R. Discussion Papers.
    3. Bindseil, Ulrich & Manzanares, Andrés & Weller, Benedict, 2004. "The role of central bank capital revisited," Working Paper Series 392, European Central Bank.
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    Cited by:

    1. Gunther Schnabl, 2017. "Exchange Rate Regime, Financial Market Bubbles and Long-term Growth in China: Lessons from Japan," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 25(1), pages 32-57, January.
    2. Engwerda, Jacob & van Aarle, Bas & Anevlavis, Tzanis, 2019. "Debt stabilization games in a monetary union: What are the effects of introducing eurobonds?," Journal of Macroeconomics, Elsevier, vol. 59(C), pages 78-102.
    3. van Riet, Ad, 2017. "Monetary Policy Stretched to the Limit: How Could Governments Support the European Central Bank?," MPRA Paper 83451, University Library of Munich, Germany.
    4. Offick Sven & Wohltmann Hans-Werner, 2016. "Partially Anticipated Monetary Policy Shocks – Are They Stabilizing or Destabilizing?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(1), pages 95-127, February.
    5. Jakob Korbinian Eberl, 2016. "The Collateral Framework of the Eurosystem and Its Fiscal Implications," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 69.
    6. Miguel Otero-Iglesias, 2015. "Stateless Euro: The Euro Crisis and the Revenge of the Chartalist Theory of Money," Journal of Common Market Studies, Wiley Blackwell, vol. 53(2), pages 349-364, March.

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    More about this item

    Keywords

    ECB; OMT program; Fiscal implications; Inflation risk; Lender of last resort; E4; E5; F3;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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