IDEAS home Printed from
   My bibliography  Save this paper

Fiscal Dominance and the Long-Term Interest Rate


  • Philip Turner


Very high government debt/GDP ratios will increase uncertainty about inflation and the future path of real interest rates. This will reduce substitutability across the yield curve. In such circumstances, changes in the short-term/long-term mix of government debt held by the public will become more effective in achieving macroeconomic objectives. In circumstances of imperfect substitutability, central bank purchases or sales of government bonds have been seen historically as a key tool of monetary policy. Since the mid-1990s, however, responsibility for government debt management has been assigned to other bodies. The mandates of the government debt manager could have the unintended consequence of making their actions endogenous to macroeconomic policies. There is evidence that decisions on the maturity of debt have in the past been linked to both fiscal and monetary policy. Recent Quantitative Easing (QE) by the central bank must be analysed from the perspective of the consolidated balance sheet of government and central bank.

Suggested Citation

  • Philip Turner, 2011. "Fiscal Dominance and the Long-Term Interest Rate," FMG Special Papers sp199, Financial Markets Group.
  • Handle: RePEc:fmg:fmgsps:sp199

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Bank for International Settlements, 2009. "Household debt: implications for monetary policy and financial stability," BIS Papers, Bank for International Settlements, number 46.
    2. Chadha,Jagjit S. & Holly,Sean (ed.), 2011. "Interest Rates, Prices and Liquidity," Cambridge Books, Cambridge University Press, number 9781107014732, February.
    3. Capie,Forrest, 2010. "The Bank of England," Cambridge Books, Cambridge University Press, number 9780521192828, February.
    Full references (including those not matched with items on IDEAS)


    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Banques centrales et dette publique : les liaisons dangereuses ?
      by Laurence Duboys Fresney in OFCE le blog on 2014-03-05 16:17:31
    2. Central banks and public debt: dangerous liaisons?
      by Laurence Duboys Fresney in OFCE le blog on 2014-03-06 19:56:31

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Avner Offer, 2013. "Narrow Banking, Real Estate, and Financial Stability in the UK, c.1870-2010," Oxford Economic and Social History Working Papers _116, University of Oxford, Department of Economics.
    2. Lloyd, S. P., 2017. "Unconventional Monetary Policy and the Interest Rate Channel: Signalling and Portfolio Rebalancing," Cambridge Working Papers in Economics 1735, Faculty of Economics, University of Cambridge.
    3. Monnet, Eric & Vari, Miklos, 2020. "A dilemma between liquidity regulation and monetary policy: some history and theory," CEPR Discussion Papers 15001, C.E.P.R. Discussion Papers.
    4. Aikman, David & Bush, Oliver & Davis, Alan, 2016. "Monetary versus macroprudential policies causal impacts of interest rates and credit controls in the era of the UK Radcliffe Report," Bank of England working papers 610, Bank of England.
    5. Jagjit S. Chadha & Philip Turner & Fabrizio Zampolli, 2013. "The ties that bind: monetary policy and government debt management," Oxford Review of Economic Policy, Oxford University Press, vol. 29(3), pages 548-581, AUTUMN.
    6. Bletzinger, Tilman & von Thadden, Leopold, 2021. "Designing QE in a fiscally sound monetary union," European Economic Review, Elsevier, vol. 132(C).
    7. Alain Naef, 2021. "Dirty float or clean intervention? The Bank of England in the foreign exchange market," European Review of Economic History, Oxford University Press, vol. 25(1), pages 180-201.
    8. Francois John Nana, 2020. "Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-28, January.
    9. Bokor, László, 2007. "Optimality criteria of hybrid inflation-price level targeting," MPRA Paper 10278, University Library of Munich, Germany, revised Jul 2008.
    10. Monnet, Eric & Puy, Damien, 2020. "Do old habits die hard? Central banks and the Bretton Woods gold puzzle," Journal of International Economics, Elsevier, vol. 127(C).
    11. Yanotti, Maria Belen, 2013. "A review of the Australian mortgage market," Working Papers 2014-01, University of Tasmania, Tasmanian School of Business and Economics, revised 01 Aug 2013.
    12. Chadha, Jagjit S., 2015. "The New Art of Central Banking," National Institute Economic Review, National Institute of Economic and Social Research, vol. 234, pages 27-39, November.
    13. Kelber, A. & Monnet, E., 2014. "Macroprudential policy and quantitative instruments: a European historical perspective," Financial Stability Review, Banque de France, issue 18, pages 151-160, April.
    14. C.A.E. Goodhart, 2014. "Competition and Credit Control," FMG Special Papers sp229, Financial Markets Group.
    15. Christophe André, 2016. "Household debt in OECD countries: stylised facts and policy issues," Chapters from NBP Conference Publications, in: Hanna Augustyniak & Jacek Łaszek & Krzysztof Olszewski & Joanna Waszczuk (ed.), Papers presented during the Narodowy Bank Polski Workshop: Recent trends in the real estate market and its analysis - 2015 edition, chapter 2, pages v1, 33-85, Narodowy Bank Polski.
    16. John Driffill, 2013. "Financial Shocks, Unemployment And Public Policy," Manchester School, University of Manchester, vol. 81(s2), pages 1-15, October.
    17. Neely, Christopher J., 2015. "Unconventional monetary policy had large international effects," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 101-111.
    18. William Mitchell, 2015. "Eurozone Dystopia," Books, Edward Elgar Publishing, number 16478, June.
    19. Eric Monnet & Miklos Vari, 2023. "A Dilemma between Liquidity Regulation and Monetary Policy: Some History and Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(4), pages 915-944, June.
    20. Goodhart, Charles A. E. & Needham, Duncan J., 2018. "Historical reasons for the focus on broad monetary aggregates in post-World War II Britain and the ‘Seven Years War’ with the IMF," LSE Research Online Documents on Economics 87364, London School of Economics and Political Science, LSE Library.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fmg:fmgsps:sp199. 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: . General contact details of provider: .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: The FMG Administration (email available below). General contact details of provider: .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.