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Interactions between sovereign debt management and monetary policy under fiscal dominance and financial instability

In: Threat of fiscal dominance?

  • Hans J Blommestein

    (Organisation for Economic Co-operation and Development (OECD))

  • Philip Turner

    (Bank for International Settlements)

This paper argues that serious fiscal vulnerabilities arising from many years of high government debt will create new and complex interactions between public debt management (PDM) and monetary policy (MP). The paper notes that, although their formal mandates have not changed, recent balance sheet policies of many Central Banks (CBs) have tended to blur the separation of their policies from fiscal policy (FP). The mandates of debt management offices (DMOs) have usually had a microeconomic focus (viz, keeping government debt markets liquid, limiting refunding risks etc). Such mandates have usually eschewed any macroeconomic policy dimension. For these reasons, all clashes in policy mandate between CBs and DMOs have been latent and not overt.

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This chapter was published in:
  • Bank for International Settlements, 2012. "Threat of fiscal dominance?," BIS Papers, Bank for International Settlements, number 65, April.
  • This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 65-12.
    Handle: RePEc:bis:bisbpc:65-12
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    1. Elisa Faraglia & Albert Marcet & Andrew Scott, 2008. "In Search of a Theory of Debt Management," Working Papers 348, Barcelona Graduate School of Economics.
    2. Alessandro Missale, 2012. "Sovereign debt management and fiscal vulnerabilities," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 157-176 Bank for International Settlements.
    3. Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858, March.
    4. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, vol. 98(4), pages 1211-44, September.
    5. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2," 2011 Meeting Papers 982, Society for Economic Dynamics.
    6. Richard G. Anderson, 2010. "The first U.S. quantitative easing: the 1930s," Economic Synopses, Federal Reserve Bank of St. Louis.
    7. Fabrizio Zampolli, 2012. "Sovereign debt management as an instrument of monetary policy: an overview," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 97-118 Bank for International Settlements.
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