Central Banks Quasi-Fiscal Policies and Inflation
IMF Working Papers, January 1, 2012
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Bibliographic details
- Authors: Seok G Park
- Published: January 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463931193.001
Summary
- Although central banks have recently taken unconventional policy actions to try to shore up macroeconomic and financial stability, little theory is available to assess the consequences of such measures.
- This paper offers a theoretical model with which such policies can be analyzed.
- In particular, the paper shows that in the absence of the fiscal authorities' full backing of the central bank's balance sheet, strange things can happen.
- For instance, an exit from quantitative easing could be inflationary and central banks cannot successfully unwind inflated balance sheets.
- Therefore, the fiscal authorities' full backing of the monetary authorities' quasi-fiscal operations is a pre-condition for effective monetary policy.
Theoretical model and mechanisms
- Provides a theoretical framework to analyze central bank unconventional and quasi-fiscal policies.
- Highlights interactions between central bank balance-sheet operations and fiscal backing.
- Demonstrates that lacking full fiscal backing can reverse expected outcomes: an exit from quantitative easing could be inflationary.
- Shows limits to central banks' ability to unwind inflated balance sheets absent fiscal support.
Key findings
- Exit from quantitative easing could be inflationary.
- Central banks cannot successfully unwind inflated balance sheets without fiscal backing.
- Fiscal authorities' full backing of the monetary authorities' quasi-fiscal operations is a pre-condition for effective monetary policy.
Subjects and keywords (as listed)
- Subject: Asset prices, Banking, Bonds, Central bank balance sheet, Central banks, Financial institutions, Inflation, Prices, Quasi-fiscal operations
- Keywords: asset account, asset maturity structure, Asset prices, asset return, Bonds, budget constraint, Central bank balance sheet, Central bank’s balance sheet, equilibrium price, Fiscal theory of price level, government bonds holding, Inflation, liability value, loss function, monetary policy behavior, net liability valuation formula, price level, Quasi-fiscal operations, Quasi-fiscal policy, WP
Seok G Park. "Central Banks Quasi-Fiscal Policies and Inflation", IMF Working Papers 2012, 014 (2012), accessed 9/17/2026, https://doi.org/10.5089/9781463931193.001