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A new test of fiscal dominance and central bank independence

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  • Jonathan Hoddenbagh

    (Johns Hopkins University)

Abstract

I develop a novel and tractable test of the degree of fiscal dominance characterizing the relationship between a country's fiscal and monetary authorities. The government's long-run fiscal rule stipulates that a given fraction of the outstanding public debt is backed by the present discounted value of current and future primary surpluses, and the remainder is backed by seigniorage revenue. The larger the proportion of debt backed by seigniorage revenue, the stronger the degree of fiscal dominance. I use my test to construct an index of

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  • Jonathan Hoddenbagh, 2024. "A new test of fiscal dominance and central bank independence," French Stata Users' Group Meetings 2024 20, Stata Users Group.
    • Handle: RePEc:boc:fsug24:20
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    File URL: http://repec.org/frsug2024/France24_Hoddenbagh.pdf
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    References listed on IDEAS

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