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Central Bank Credit to the Government; What Can We Learn From International Practices?

Author

Listed:
  • Marcela Matamoros-Indorf
  • Mrinalini Sharma
  • Simon 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.

Suggested Citation

  • Marcela Matamoros-Indorf & Mrinalini Sharma & Simon Townsend & Luis Ignacio Jácome, 2012. "Central Bank Credit to the Government; What Can We Learn From International Practices?," IMF Working Papers 12/16, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/16
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    References listed on IDEAS

    as
    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, Alex & Miller, Geoffrey P. & Neyapti, Bilin, 2002. "Central bank reform, liberalization and inflation in transition economies--an international perspective," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 237-264, March.
    3. Marco Arnone & Bernard J Laurens & Jean-François Segalotto & Martin Sommer, 2009. "Central Bank Autonomy: Lessons from Global Trends," IMF Staff Papers, Palgrave Macmillan, vol. 56(2), pages 263-296, June.
    4. Jácome, Luis I. & Vázquez, Francisco, 2008. "Is there any link between legal central bank independence and inflation? Evidence from Latin America and the Caribbean," European Journal of Political Economy, Elsevier, vol. 24(4), pages 788-801, December.
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    Citations

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    Cited by:

    1. Josh Ryan-Collins, 2015. "Is Monetary Financing Inflationary? A Case Study of the Canadian Economy, 1935-75," Economics Working Paper Archive wp_848, Levy Economics Institute.
    2. Ulrich Volz & Dafe Florence & Dennis Essers, 2017. "Localising Sovereign Debt: The Rise of Local Currency Bond Markets in Sub-Saharan Africa," Working Papers 202, Department of Economics, SOAS, University of London, UK.
    3. repec:bla:sajeco:v:85:y:2017:i:3:p:455-478 is not listed on IDEAS
    4. Luís Manuel Seixas, 2015. "The Euro Monetary Fund. A proposal for sovereign-debt redemption," Working Papers Department of Economics 2015/07, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    5. Emre Alper & Niko A Hobdari & Ali Uppal, 2016. "Food Inflation in Sub-Saharan Africa; Causes and Policy Implications," IMF Working Papers 16/247, International Monetary Fund.
    6. C. Emre Alper & R. Armando Morales & Fan Yang, 2017. "Monetary Policy Implementation and Volatility Transmission Along the Yield Curve: The Case of Kenya," South African Journal of Economics, Economic Society of South Africa, pages 455-478.

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