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Central bank financial strength and inflation: an empirical reassessment considering the key role of the fiscal support

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  • Julien Pinter

    () (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, UvA - University of Amsterdam [Amsterdam])

Abstract

This paper re-examines whether weak central bank finances affect inflation by scrutinizing the key rationale for such a relationship: that the absence of Treasury support makes central bank finances relevant for price stability. Specifically, I ask whether central banks which are not likely to enjoy fiscal support when needed experience higher inflation as their inflation as their financial situation deteriorates. I find this to be true among a large sample of 82 countries between 1998 and 2008. De facto potential fiscal support appears relevant, while de jure fiscal support, which I survey analyzing 82 central bank laws, does not appear to matter. No link is found in a general context. The results bring forward an explanation for the conflicting results of the previous empirical studies, which neglected this key component.

Suggested Citation

  • Julien Pinter, 2017. "Central bank financial strength and inflation: an empirical reassessment considering the key role of the fiscal support," Post-Print halshs-01660945, HAL.
  • Handle: RePEc:hal:journl:halshs-01660945
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01660945
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    Keywords

    Central bank financial strength; Central bank capital; Central bank balance sheet; Inflation; Fiscal space; Central bank law;

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