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Central Banks' Quasi-Fiscal Policies and Inflation

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  • Seok Gil Park

    (International Monetary Fund)

Abstract

Although central banks recently expanded their balance sheets by unconventional policy actions, little theory is available to explain how and when central banks’ balance sheets affect inflation and impose restrictions on monetary policy. A DSGE model predicts that central banks’ balance sheet shocks affect inflation through private agents’ portfolio adjustments when fiscal authorities do not financially support central banks. In those cases, central banks cannot successfully unwind inflated balance sheets and stabilize inflation during the implementation of exit strategy. Therefore, fiscal authorities’ backup is a pre-condition for effective monetary policy when central banks are engaged in quasi-fiscal policy roles.

Suggested Citation

  • Seok Gil Park, 2015. "Central Banks' Quasi-Fiscal Policies and Inflation," International Journal of Central Banking, International Journal of Central Banking, vol. 11(2), pages 199-236, March.
  • Handle: RePEc:ijc:ijcjou:y:2015:q:2:a:6
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    References listed on IDEAS

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    Cited by:

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    2. Pierpaolo Benigno & Salvatore Nisticò, 2020. "Non-neutrality of Open-Market Operations," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 175-226, July.
    3. repec:spo:wpmain:info:hdl:2441/6tr1nod75s8ica439nb3qggf7q is not listed on IDEAS
    4. Das, Piyali, 2021. "Fiscal financing components in a simple model of policy interaction," Economic Modelling, Elsevier, vol. 96(C), pages 257-276.
    5. Michal Franta & Tomas Holub & Branislav Saxa, 2018. "Balance Sheet Implications of the Czech National Bank's Exchange Rate Commitment," Working Papers 2018/10, Czech National Bank.
    6. repec:hal:spmain:info:hdl:2441/6tr1nod75s8ica439nb3qggf7q is not listed on IDEAS

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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