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Interactions Between Sovereign Debt Management and Monetary Policy Under Fiscal Dominance and Financial Instability

  • Hans J. Blommestein
  • Philip Turner

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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File URL: http://dx.doi.org/10.1787/5k9fdwrnd1g3-en
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Paper provided by OECD Publishing in its series OECD Working Papers on Sovereign Borrowing and Public Debt Management with number 3.

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Date of creation: 20 Feb 2012
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Handle: RePEc:oec:dafaaf:3-en
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  1. Albert Marcet & Elisa Faraglia & Andrew Scott, 2008. "In Search of a Theory of Debt Management," UFAE and IAE Working Papers 743.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-study Analysis of Operation Twist and Its Implications for QE2," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 151-207.
  3. Richard G. Anderson, 2010. "The first U.S. quantitative easing: the 1930s," Economic Synopses, Federal Reserve Bank of St. Louis.
  4. 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.
  5. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, vol. 98(4), pages 1211-44, September.
  6. 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.
  7. Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858.
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